TIDMZTF
RNS Number : 3246V
Zotefoams PLC
09 August 2022
Zotefoams plc
Interim Report for the Six Months Ended 30 June 2022
Effective pricing actions support strong H1 with increased
profit expectations for the full year
9 August 2022 - 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
2022.
Results highlights
-- Group revenue of GBP59.0m, 23% above the prior year comparative
(HY 2021: GBP48.2m) - High-Performance Products (HPP) sales up 21% to
GBP23.7m (HY 2021: GBP19.6m)
- Polyolefin foams sales up 26% to GBP34.3m (HY 2021:
GBP27.3m)
-- On a constant currency basis, Group revenue was 21% ahead
of the prior year comparative at GBP57.9m
-- Effective pricing has supported gross margins, despite
significant cost inflation
-- Profit before tax (PBT) increased 42% to GBP5.7m (HY
2021: GBP4.0m)
- FX tailwinds benefitted PBT by GBP1.0m
-- Basic earnings per share increased 44% to 9.42p (HY 2021:
6.52p)
-- Interim dividend increased by 4% to 2.18p per share (HY
2021: 2.10p per share), reflecting strong growth and
confidence in the Group's prospects
Strategic highlights
-- Strong performance and current order book in most polyolefin
foam markets and territories provides good momentum leading
into H2
- In Poland, our third major manufacturing site
has increased production and is increasingly
servicing key European customers directly
-- Aviation sales increasing as market recovers and continued
good demand in footwear products
-- Key patent granted in the USA for ReZorce(R) recyclable
packaging technology
Financial summary
Six months Six months Change
ended 30 ended 30
June 2022 June 2021
Group revenue (GBPm) 59.0 48.2 23%
Gross margin (%) 28.9 28.9 -
Operating profit (GBPm)* 6.6 4.7 41%
Profit before tax (GBPm)* 5.7 4.0 42%
Basic EPS (p)* 9.42 6.52 44%
Cash generated from operations
(GBPm) 5.2 5.6 (8%)
Interim dividend (p) 2.18 2.10 4%
Leverage ratio (multiple) 2.0 1.9 -
Net debt (GBPm) 38.0 35.6 (7%)
*Unadjusted for GBP0.12m of amortisation on acquired
intangibles
Commenting on the results and the outlook, David Stirling, Group
CEO, said:
"We have delivered robust volume growth across both the HPP and
Polyolefin Foam businesses in H1 2022. Alongside this, several
rounds of price increases have been implemented across products and
markets to catch up with persistent and unpredictable input cost
inflation. As a result, we have been able to report stable gross
margins, which has enabled strong first half operating profit
growth.
"Order books and demand momentum across key markets coming
through the half year underpin our expectation for year-on-year
sales growth in H2 2022, which will also benefit from better
pricing, support from more favourable exchange rates and better
product mix.
"Input inflation, other than energy pricing, has moderated and
supply chains are operating more normally, however, there is a
heightened level of risk associated with macroeconomic factors and
the demand environment.
"Whilst remaining mindful of these risks we now expect full year
underlying profit to be ahead of current market consensus
expectations.
"Overall, I am pleased with the recent performance and current
positioning of our business. "
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 in the period increased 23% to GBP59.0m ( HY 2021:
GBP48.2m), with pricing and product mix driving the majority of
growth. Sales volumes increased by 4% with good demand across most
regions and markets. On a constant currency basis, Group revenue
was up 20% to GBP57.9m.
Gross profit increased 23% to GBP17.1m (HY 2021: GBP13.9m), with
gross margin unchanged at 28.9% (HY 2021: 28.9%). The Group
implemented a number of price increases during the period to offset
the cost increases, most notably the continuing high raw material
prices and the surge in energy prices.
Operating profit for the period increased by 41% to GBP6.6m ( HY
2021: GBP4.7m). Profit before tax increased 42% to GBP5.7m ( HY
2021: GBP4.0m) and basic earnings per share increased 44% to 9.42p
( HY 2021: 6.52p). Operating profit benefitted from a GBP1.0m
favourable currency movement.
Cash generated from operations was GBP5.2m (HY 2021: GBP5.6m),
with period end working capital higher than normal due to timing of
receivables after strong sales in May and June. Closing net debt
increased in the first six months of the year by GBP3.7m to
GBP38.0m (31 December 2021: GBP34.3m) and leverage (net borrowings
to EBITDA, see section "Net debt and covenants" for definition) at
the end of the period was 2.0x (31 December 2021: 2.1x).
The Board remains confident in the cash generation of the
business and an interim dividend of 2.18p per share has been
approved by the Board ( HY 2021: 2.10p 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.
In the first half of 2022 we delivered 23% revenue growth, with
pricing initiatives and product mix being the most significant
factors. Sales volumes increased by 4%, while favourable foreign
exchange rates accounted for 2% of the growth.
Our footwear business grew by 20% compared with H1 2021 and
accounted for 33% of Group sales (HY 2021: 34%). Demand in most
other markets remained strong, with notable improvement in aviation
and insulation products and a noticeable exception being
automotive. By geography, all regions delivered sales growth, led
by price increases.
Polyolefin Foams
Polyolefin Foams represented 58% of Group revenue (HY 2021:
57%), with sales increasing 26% to GBP34.3m (HY 2021: GBP27.3m) and
sales volumes increasing 4%. On a constant currency basis, sales
were GBP34.4m. Price increases in the UK and Europe, including a
price surcharge aligned to input costs, increased average sales
prices by 20%. Product mix suffered a temporary adverse impact in
the period as a result of supply constraints in certain additives
that are required for many of our more technical, higher-value
products.
In Continental Europe (46% of segment sales) sales increased 23%
and volumes increased 6% versus the comparative period, with all
markets other than automotive performing strongly. In the UK (17%
of segment sales), sales increased 9% but volumes declined 6% the
latter partly due to timing in availability of higher-value
products. In North America (31% of segment sales), sales increased
47% and volumes increased 13%, with record sales performance and
order book and an improved product mix. In Asia, where volumes are
significantly lower (6% of sales) and the product mix is biased to
higher-value products, sales grew 10% but volumes fell 12%, the
latter again linked to availability of these products in the
period.
Segment profit increased by 28% to GBP1.7m ( HY 2021: GBP1.3m),
yielding a segment profit margin of 5% (HY 2021: 5%) and is an
increase from the 1% margin achieved for full year 2021. On a
constant currency basis, segment profit was GBP1.9m. While this
improvement in profitability is welcome, the segment profit remains
low due to three main factors. Firstly, inflationary costs,
primarily in raw materials and energy, have been passed on as price
increases, but with a timing lag. We believe that our market
pricing now reflects the current level of costs we face, other than
possible further energy price increases in the second half,
therefore future margins should reflect the full benefit of our
price increases. Secondly, we have invested in additional capacity
which comes with margin dilution in the short term. This primarily
relates to the incremental costs associated with our Poland
facility, which is currently operating as planned at lower
utilisation levels but is already providing valuable global
capacity to the AZOTE business unit and improved customer service
to mainland Europe customers. Finally, our North American facility
has recorded strong sales growth and is enjoying record order
books, but performance efficiency has suffered without direct
support from the UK during COVID travel restrictions. This is now
being resolved and, combined with the benefit of continuous
operational improvements in the UK facility, will benefit margins
over the medium term.
The relationship between our prices and input costs is obviously
of particular importance. Generally, we are able to pass on
increased costs if these are commensurate with the inflation being
experienced. Historically, we have not typically utilised
short-term dynamic pricing in response to either rising or falling
raw material costs, with minor variations being absorbed over a
cycle of annual price increases. However, recent cost inflation has
not been typical, with very high prices for our major raw
materials, particularly low-density polyethylene ("LDPE"), as well
as other input costs. In the UK and Europe, Zotefoams implemented
price increases effective January 2022 and April 2022 and then
introduced a price surcharge in May. In the USA, we implemented
price increases in January 2022 and May 2022. In both cases, we
also introduced speciality materials surcharges. The intent of
these price increases is to recover the higher costs but not to
recover previous percentage margin levels, nor position at the peak
pricing levels experienced. Finding the balance between price rises
and potential demand destruction in the current environment
represents an ongoing challenge. We expect our sales prices to hold
when polymer prices return to more normal levels, while surcharges
are positioned to be more flexible and relate closely to increases
or decreases in the main costs we face.
High-Performance Products ("HPP")
HPP represented 40% of Group revenue in the period ( HY 2021:
41%), with sales increasing 21% to GBP23.7m ( HY 2021: GBP19.6m).
On a constant currency basis, sales were GBP22.6m, representing 15%
growth. Sales volumes in HPP were 9% higher than the comparative
period. Sales of our largest application, footwear, continued to
show growth in the period, increasing 18% in the period to GBP19.5m
(HY 2021: GBP16.5m). ZOTEK(R) F technical foams, which are mainly
used in aviation, grew by 69% to GBP1.9m (HY 2021: GBP1.1m). This
remains significantly below the pre-pandemic years (HY 2020:
GBP3.5m and HY 2019: GBP4.2m) but is an encouraging trend and we
expect this momentum to continue. T-FIT (R) advanced insulation,
which is mainly used for cleanrooms in pharmaceutical, biotech and
semiconductor manufacturing, grew 8% in the period under very
difficult conditions, particularly in China, one of our main
markets, which has adopted a zero-tolerance approach to COVID-19
and where our local processing plant was closed for five weeks
during Q2 2022. 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 seeing increased interest in the
product range and expected growth to accelerate in H2 2022,
provided Asia avoids further COVID disruption.
The segment profit in HPP reflects a mix of products and markets
at different stages of development. Within this portfolio foams
used for footwear and aviation 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, but
more recently in the USA and Poland. We intend to continue with
this investment, which we believe offers good potential to support
our long-term ambition.
Segment profit in HPP increased by 66% to GBP6.5m ( HY 2021:
GBP3.9m), yielding a segment profit margin of 27% ( HY 2021: 20%).
On a constant currency basis, segment profit was GBP5.3m, yielding
a profit margin of 23%. Most HPP sales are in USD while costs are
in a mixture of GBP, USD and Euro, therefore the benefit of the
stronger dollar and weaker euro was greater on the HPP segment than
in Polyolefin Foams. Raw materials and other inflationary pressures
were less marked in HPP than in AZOTE, partly as a result of larger
inventory holdings in HPP, with correspondingly lower pricing
adjustments in HPP foams or T-FIT insulation products being
made.
MuCell Extrusion LLC ("MEL")
MEL, which licenses microce llular foam technology and sells
related machinery, accounted for 2% ( HY 2021: 3%) of Group revenue
in the period with sales of GBP1.1m ( HY 2021: GBP1.3m).
We continue to divert many of our existing resources away from
our traditional MEL licensing business model and towards the
business opportunity offered by our ReZorce(R) barrier materials
products. Moreover, as we have previously communicated, we have
invested additional resources to deliver this opportunity. ReZorce
is a mono-material, and hence fully recyclable, barrier packaging
solution for consumer products 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 a
global industry.
While considerable challenges, and therefore risks, remain in
developing the complete "end-to-end" solution, there have been some
notable developments since our last update such as the granting of
a key patent in the USA and trials at low volume on a commercial
production line proving our ability to make and fill a carton based
on our technology. Higher output trials are planned and we now
intend to investigate potential partnerships to support the journey
through development and commercialisation, given the size of the
opportunity and expertise required.
During the period, we invested GBP0.6m in operating costs (HY
2021: GBP0.3m) to continue the development of ReZorce, while a
further GBP0.9m of capex was incurred, split GBP0.7m (HY 2021:
GBP0.2m,) intangible development costs and GBP0.2m (HY 2021:
GBP0.5m) tangible assets. Since the inception of this initiative,
the Group has capitalised a total of GBP3.3m (HY 2021:
GBP1.2m).
MEL reported a segment loss after amortisation costs of GBP0.6m
( HY 2021: loss GBP0.1m), with breakeven in the core business of
MEL as growth investment was diverted to ReZorce and licence income
increased. The carrying value of MEL at 30 June 2022 includes
intangible assets of GBP6.3m (31 December 2021: GBP5.1m), which
mostly comprises goodwill and technology that arose on the
acquisition of MEL in a previous accounting period and capitalised
development costs relating to ReZorce. While MEL has historically
been loss making, we consider that no impairment is needed at this
stage based on the size and potential of the opportunity that the
ReZorce technology offers. In this regard, the carrying value is
supported by the Board's ongoing commitment to funding the project
and the progress made to date and expected in the second half of
the year.
Environmental, Social and Governance ('ESG')
The Board understands that embedding ESG in our business creates
sustainable long-term value for stakeholders. Zotefoams' purpose,
to provide "Optimal material solutions for the benefit of society"
reflects our belief that plastics, when used appropriately, are
frequently the best solution for the sophisticated, long-term
applications typically delivered by our customers. We are making
good progress on our ESG plans including reducing energy and
polymer usage, minimising waste and developing new products which
use recycled materials. A full ESG report was published in March
2022 setting out the Group's ESG management framework and goals.
This will be updated in March 2023 .
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. While direct
engagement with certain overseas operations has increased as the
effects of COVID-19 subside, others remain difficult to visit and
renders the continued use of technology essential to training,
alignment and management. We currently employ 572 people globally
(HY 2021: 551 people), 42% ( HY 2021: 35%) 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.
We would also like to thank Dan Catalano, President of our USA
operation until his retirement in May 2022, for his 18 years of
service to the Zotefoams Group and his contributions to the growth
of our US business, including his successful oversight of the
recent capacity investment in the facility. We wish him well in his
retirement.
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
22 21 21
------------------------------ ---------- ---------- ----------
Euro to GBP - period average 1.189 1.152 1.163
Euro to GBP - period-end spot 1.163 1.164 1.192
USD to GBP - period average 1.300 1.388 1.376
USD to GBP - period-end spot 1.213 1.384 1.351
------------------------------ ---------- ---------- ----------
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, and
non-sterling accounts receivable held on the Company's balance
sheet. 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 positive impact on sales
and profitability. Reported net sales were GBP1.1m above those
adjusted on a constant currency basis (HY 2021: GBP2.6m below). The
net profit effect of this on the Group, prior to any hedging
activity, was a gain of approximately GBP1.0m ( HY 2021 loss:
GBP1.8m). Offsetting this, and included in administrative expenses,
was a loss of GBP0.9m (HY 2021 gain: GBP1.0m) from transactional
hedging via forward exchange contracts. We also recorded a
translation gain, mostly related to the translation of
USD-denominated footwear receivables, of GBP0.9m ( HY 2021 loss:
GBP0.4m). The combined favourable impact of movements in foreign
currency on profitability in the period was GBP1.0m (2021: adverse
effect GBP1.2m).
Gross profit
Gross profit increased 23% in the period to GBP17.1m (HY 2021:
GBP13.9m), benefitting from improved pricing, the operational
gearing effect of higher sales volumes and GBP1.1m of favourable
currency impact. Price increases in the period partially offset the
cost inflation in, primarily, raw materials and energy, with a lag
in implementation. Period-to-period, average low-density
polyethylene prices (the primary raw material for AZOTE(R) foams)
were 27% higher and energy prices were 50% higher. Since the
beginning of the year, the contribution margin (sales less direct
input costs and energy) has increased by six percentage points. The
net impact of this was an unchanged gross profit margin of 28.9%
(HY 2021: 28.9%).
We do not anticipate any meaningful relief from high polymer
prices this year and expect energy costs to remain high and
extremely unpredictable for the foreseeable future as a result of
the prevailing geopolitical uncertainty.
Distribution and administrative costs
Included within distribution expenses in the Group's income
statement are sales, marketing, despatch and warehousing costs.
These costs increased 3% to GBP3.7m (HY 2021: GBP3.6m), with
increased sales activity offset by efficiency improvements in areas
including offsite warehouse storage.
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 increased 19% to GBP6.8m (HY 2021: GBP5.7m).
Stripping out FX hedging movements, costs increased 9% to GBP6.9m
(HY 2021: GBP6.3m. See currency review for further details of
FX-related variances.
Finance Costs
Finance costs increased to GBP0.9m ( HY 2021: GBP0.6m) and
include GBP0.1m ( HY 2021: GBP0.1m) of interest on the Company's
Defined Benefit Scheme pension obligation. The increase relates to
GBP0.3m of unamortised costs from the previous banking facility,
which was replaced in March 2022.
Taxation and earnings per share
Income tax expense for the period increased by 35% to GBP1.1m
(HY 2021: GBP0.8m). The tax charge 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 2022 is
19.88% (estimated average annual tax rate for the year used at 30
June 2021: 21.04%), which reflects the increase in profits of the
legal entities within the UK.
Basic earnings per share was 9.62p (HY 2021: 6.52p) an increase
of 44%.
Cash flow
Cash generated from operations was GBP5.2m ( HY 2021: GBP5.6m).
Included in this was a net increase in working capital in the
period of GBP5.8m ( HY 2021: net increase of GBP3.0m). Accounts
receivable increased GBP9.6m in the period ( HY 2021: increased
GBP4.1m), reflecting very high May and June sales (average terms
70-90 days) as well as a short delay in cash receipt across the
period end due to a delay in material transit to a large customer.
Excluding footwear customers, whose size skews the statistic,
overdues continued to be below 1%. Inventories increased GBP1.0m in
the period ( HY 2021: increased GBP3.9m) and accounts payable
increased GBP4.7m ( HY 2021: increased GBP5.0m), reflecting
significantly higher levels of activity and materials pricing
compared with the comparative period.
Capital expenditure in the period was GBP 3.4m ( HY 2021:
GBP3.4m), of which GBP0.8m (HY 2021: GBP0.3m) related to
intangibles arising from the capitalisation of ReZorce development
costs. A final dividend of GBP2.1m (HY 2021: GBP2.1m) was paid
during the period.
Net debt and covenants
Net debt (cash less bank borrowings and lease liabilities)
increased by GBP3.7m from the start of the period to GBP38.0m (31
December 2021: GBP34.3m).
At 30 June 2022, the Group's gross finance facilities were
GBP50.0m, comprising a multi-currency term loan of GBP50.0m. At 31
December 2021, the Group's gross finance facilities were GBP47.3m,
comprising a multi-currency term loan of GBP20m, a multi-currency
revolving credit facility of GBP25.0m and a remaining balance of
GBP2.3m of a further GBP7.5m sterling annually renewable term loan
that had been repayable in equal quarterly instalments. At the date
of the Statement of Financial Position, headroom, which we define
as the combination of amount undrawn on the facility and cash and
cash equivalents disclosed on the Statement of Financial Position,
amounted to GBP12.3m (31 December 2021: GBP13.4m).
The facility is subject to two covenants, which are tested
semi-annually: net debt to EBITDA (leverage) and EBITDA to net
finance charges. These measures, which are not IFRS, are defined as
follows:
Net debt to EBITDA ratio (Leverage)
12 months
to 30 12 months At 30 At 31
June to 31 Dec June Dec
GBPm 2022 2021 GBPm 2022 2021
Profit after tax 6.2 4.4 Net debt per IFRS 38.0 34.3
Adjusted for: IFRS 16 leases (1.0) (1.1)
Fin leases pre
Depreciation and amortisation 7.7 7.6 1 January 2019 0.0 0.1
Net finance costs 1.4 1.1 Roundings 0.0 (0.1)
Share of result from
joint venture (0.1) 0.0 Net debt per bank 37.0 33.2
Equity-settled share-based
payments 0.4 0.4
Taxation 2.5 2.6
EBITDA 18.1 16.1 Leverage per bank 2.0x 2.1x
EBITDA to net finance charges
ratio
12 months 12 months 12 months
to 30 12 months to 30 to 31
June to 31 Dec June Dec
GBPm 2022 2021 GBPm 2022 2021
EBITDA , as above 18.1 16.1 Net finance costs 1.4 1.1
Less: interest
on pension (0.1) (0.1)
EBITDA to net finance
charges 14.1x 16.1x Net finance charges 1.3 1.0
As shown above, the Group remained comfortably within these
covenants t hroughout the first half of the year and at the
period-end. As at 30 June 2022, the ratio of EBITDA to net finance
charges was 14x (31 December 2021: 16x; 30 June 2021: 21x), against
a covenant minimum of 4x, and the ratio of net borrowings to EBITDA
(leverage) was 2.0x (31 December 2021: 2.1x; 30 June 2021: 1.9x),
against a covenant maximum of 3.5x (31 December 2021 and 30 June
2021: 3.0x).
Post-employment benefits
The last full actuarial valuation of the DB Scheme, closed to
new members since 2001, took place as at 5 April 2020, in line with
the requirement to have a triennial valuation. On a Statutory
Funding Objective basis, a deficit was calculated for the DB Scheme
of GBP7.7m (previous triennial valuation: GBP4.2m). As a result,
the Company agreed with the Trustees to make contributions to the
DB Scheme of GBP643,200 per annum, beginning 1 July 2021, to meet
the shortfall by 31 October 2026 (previously 31 October 2026), up
from GBP492,000 per annum previously. In addition, the Company pays
the ongoing DB Scheme expenses of GBP216,000 per annum (previously
GBP180,000 per annum) to cover death-in-service insurance premiums,
the expenses of administering the DB Scheme and Pension Protection
Fund levies.
At the previous year-end of 31 December 2021, the IAS19 deficit
disclosed in the Company accounts was calculated to be GBP4.7m.
Over the period to 30 June 2022, the Scheme's invested assets have
reduced by around GBP7.6m while the liabilities have reduced by
around GBP9.8m 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 GBP2.2m (i.e.
from GBP4.7m as at 31 December 2021 to around GBP2.5m as at 30 June
2022).
Going Concern
In March 2022, the Group completed a bank refinancing that,
after a competitive tender process, culminated in it continuing its
relationship with its partner banks Handelsbanken and NatWest on
improved terms. Under these new terms, the Group's gross finance
facility comprises a GBP50m multi-currency revolving credit
facility with a GBP25m accordion, on a 4+1 tenor, with an interest
rate ratchet linked to leverage on a six-monthly basis, and
including a small element related to the achievement of
sustainability targets. The finance cost and leverage covenants
remain in place, with the former remaining at 4:1 and the latter
increasing to 3.5:1 from 3.0:1.
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.
Dividend
An interim dividend of 2.18p per share ( HY 2021: 2.10p per
share) will be paid on 7 October 2022 to shareholders on the
Company's register at the close of business on 9 September
2022.
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, pages 45 to 54, of the 2021 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 understanding of the inflationary
pressures and supply chain issues prevailing. While the
Ukraine-Russia war had only just begun, the macroeconomic risks
were understood and the impact on the Group has, as expected, been
primarily through higher energy prices. The direct effects of the
pandemic also continue to impact the Group, but now mostly through
our T-FIT operations in Asia, where the China processing facility
was shut down for five weeks in Q2 2022 and travel to the region
remains restricted. The Group's significant footwear operations in
Asia have, however, been unaffected. Our investment in ReZorce
technology remains, as previously noted, high risk and high
potential reward and is subject to regular and direct Board
oversight. Detailed explanations of the Group's principal risks can
be found in the 2021 Annual Report. Broadly, these 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.
Outlook
In H2 2022, we expect year-on-year growth in sales as a
consequence of better pricing, including support from more
favourable exchange rates, and improved product mix .
In Polyolefin Foams, the strong demand experienced in H1 2022
has translated into an encouraging third quarter order book, with a
better product mix following improved availability of speciality
products. Volumes in Polyolefin Foams are likely to be lower than
in H1 2022, based on normal seasonality, but at similar levels to
H2 2021, albeit with some variation in regional performance.
In HPP, we enter H2 2022 with a strong order book for footwear
and a good pipeline of business in other areas. We therefore
anticipate further sequential growth for the remainder of the year,
with H2 volumes modestly higher than H1 2022 and with an improved
mix due to increased sales to the aviation segment.
In MEL, we expect sales in H2 2022 to be at similar levels to H1
2022 but with a mix more oriented to equipment sales, and a
significant increase in operating costs as we progress the ReZorce
initiative.
Input inflation, other than energy pricing, has moderated and
supply chains are operating more normally, however, there is a
heightened level of risk associated with macroeconomic factors and
the demand environment.
Whilst remaining mindful of these risks we now expect full year
underlying profit to be ahead of current market consensus
expectations.
S P Good D B Stirling
Chairman Group CEO
9 August 2022 9 August 2022
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
2021 Annual Report as well as on the Zotefoams plc website:
www.zotefoams.com.
By order of the Board:
S P Good D B Stirling
Chairman Group CEO
9 August 2022 9 August 2022
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT FOR THE SIX
MONTHSED 30 JUNE 2022
Six months ended Year Ended
--------------------------
30-Jun-22 30-Jun-21 31-Dec-21
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
Revenue 6 59,045 48,164 100,750
Cost of sales (41,975) (34,233) (74,184)
----------------------------------- ------ ------------ ------------ -----------
Gross profit 17,070 13,931 26,566
Distribution costs (3,706) (3,583) (7,316)
Administrative expenses (6,803) (5,695) (11,117)
Operating profit 6,561 4,653 8,133
----------------------------------- ------ ------------ ------------ -----------
Finance costs (912) (617) (1,116)
Finance income 13 4 11
Share of profit/(loss) from joint
venture 42 (36) (20)
----------------------------------- ------ ------------ ------------ -----------
Profit before income tax 5,704 4,004 7,008
Income tax expense 7 (1,134) (842) (2,632)
----------------------------------- ------ ------------ ------------ -----------
Profit for the period/year 4,570 3,162 4,376
Profit attributable to:
Equity holders of the Company 4,570 3,162 4,376
----------------------------------- ------ ------------ ------------ -----------
4,570 3,162 4,376
Earnings per share:
Basic (p) 9 9.42 6.52 9.01
----------------------------------- ------ ------------ ------------ -----------
Diluted (p) 9 9.21 6.40 8.87
----------------------------------- ------ ------------ ------------ -----------
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 2022
Six months ended Year ended
--------------------------
30-Jun-22 30-Jun-21 31-Dec-21
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-----------------------------------------------------------------------------
Profit for the period/year 4,570 3,162 4,376
----------------------------------------------------------------------------- ------------ ------------ -----------
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Actuarial gains on defined benefit pension schemes 1,800 2,554 3,517
Tax relating to items that will not be reclassified (450) (528) (444)
----------------------------------------------------------------------------- ------------ -----------
Total items that will not be reclassified to profit or loss 1,350 2,026 3,073
----------------------------------------------------------------------------- ------------ ------------ -----------
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation gains/(losses) on investment in foreign
subsidiaries 3,279 (623) (96)
Change in fair value of hedging instruments (3,141) 570 (344)
Hedging (losses)/gains reclassified to profit or loss 1,348 (995) (1,251)
Tax relating to items that may be reclassified 450 (155) 376
Total items that may be reclassified subsequently to profit or loss 1,936 (1,203) (1,315)
----------------------------------------------------------------------------- ------------ ------------ -----------
Other comprehensive income for the period/year, net of tax 3,286 823 1,758
----------------------------------------------------------------------------- ------------ ------------ -----------
Total comprehensive income for the period/year 7,856 3,985 6,134
----------------------------------------------------------------------------- ------------ ------------ -----------
Profit attributable to:
Equity holders of the Company 7,856 3,985 6,134
-----------------------------------------------------------------------------
Total comprehensive income for the period/year 7,856 3,985 6,134
----------------------------------------------------------------------------- ------------ ------------ -----------
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 2022
30-Jun-22 30-Jun-21 31-Dec-21
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
--------------------------------------- ------ -------------------- ------------------- ------------------
Non-current assets
Property, plant and equipment 10 94,627 91,505 91,401
Right-of-use assets 946 1,353 1,104
Intangible assets 7,190 5,617 6,224
Investments in joint venture 205 147 163
Trade and other receivables 59 35 11
Deferred tax assets 430 460 492
--------------------------------------- ------
Total non-current assets 103,457 99,117 99,395
--------------------------------------- ------ -------------------- ------------------- ------------------
Current assets
Inventories 27,569 26,817 25,954
Trade and other receivables 34,253 26,112 24,338
Derivative financial instruments 13 1 868 173
Cash and cash equivalents 7,726 6,738 8,055
--------------------------------------- ------ -------------------- ------------------- ------------------
Total current assets 69,549 60,535 58,520
--------------------------------------- ------ -------------------- ------------------- ------------------
Total assets 173,006 159,652 157,915
--------------------------------------- ------ -------------------- ------------------- ------------------
Current liabilities
Trade and other payables (14,151) (12,639) (9,242)
Derivative financial instruments 13 (2,799) (156) (600)
Current tax liability (583) - (83)
Lease liabilities (466) (503) (486)
Interest-bearing loans and borrowings 11 (44,743) (26,717) (26,564)
Total current liabilities (62,742) (40,015) (36,975)
--------------------------------------- ------ -------------------- ------------------- ------------------
Non-current liabilities
Lease liabilities (504) (870) (643)
Interest-bearing loans and borrowings 11 - (14,272) (14,710)
Deferred tax liabilities (3,425) (1,760) (3,155)
Post-employment benefits (2,529) (6,050) (4,657)
--------------------------------------- ------ -------------------- ------------------- ------------------
Total non-current liabilities (6,458) (22,952) (23,165)
--------------------------------------- ------ -------------------- ------------------- ------------------
Total liabilities (69,200) (62,967) (60,140)
--------------------------------------- ------ -------------------- ------------------- ------------------
Total net assets 103,806 96,685 97,775
--------------------------------------- ------ -------------------- ------------------- ------------------
Equity
Issued share capital 2,431 2,431 2,431
Share premium 44,178 44,178 44,178
Own shares held (7) (10) (10)
Capital redemption reserve 15 15 15
Translation reserve 5,507 1,701 2,228
Hedging reserve (1,653) 329 (310)
Retained earnings 53,335 48,041 49,243
--------------------------------------- ------ -------------------- ------------------- ------------------
Total equity 103,806 96,685 97,775
--------------------------------------- ------ -------------------- ------------------- ------------------
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 2022
Six months
ended Year ended
--------------------- ------------
30-Jun-22 30-Jun-21 31-Dec-21
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
-------------------------------------------- --------------------- ------------ -----------
Cash flows from operating activities
Profit for the period/year 4,570 3,162 4,376
Adjustments for:
Depreciation and amortisation 3,905 3,783 7,624
Disposal of assets - 88 53
Finance costs 904 612 1,105
Share of (profit)/loss from joint venture (42) 36 20
Net exchange differences 658 121 376
Equity-settled share-based payments 335 342 360
Taxation 1,134 842 2,632
-------------------------------------------- --------------------- ------------ -----------
Operating profit before changes in working
capital and provisions 11,464 8,986 16,546
Increase in trade and other receivables (9,618) (4,084) (1,636)
Increase in inventories (967) (3,899) (2,843)
Increase in trade and other payables 4,742 4,956 1,506
Employee defined benefit contributions (430) (350) (779)
-------------------------------------------- --------------------- ------------ -----------
Cash generated from operations 5,191 5,609 12,794
Interest paid (455) (405) (789)
Income taxes received/(paid) 245 (443) (1,087)
-------------------------------------------- --------------------- ------------ -----------
Net cash flows generated from operating
activities 4,981 4,761 10,918
-------------------------------------------- --------------------- ------------ -----------
Cash flows from investing activities
Interest received 9 4 11
Interest paid - (33) (32)
Purchases of intangibles (794) (328) (1,069)
Proceeds on disposal of property, plant
and equipment - - 88
Purchases of property, plant and equipment (2,629) (3,069) (6,002)
Net cash used in investing activities (3,414) (3,426) (7,004)
-------------------------------------------- --------------------- ------------ -----------
Cash flows from financing activities
Proceeds from options exercised and issue
of share capital - 26 40
Repayment of borrowings (42,729) (5,489) (7,739)
Proceeds from borrowings 43,092 4,618 6,974
Lease payments (272) (270) (543)
Dividends paid (2,131) (2,058) (3,074)
-------------------------------------------- --------------------- ------------ -----------
Net cash used in financing activities (2,040) (3,173) (4,342)
-------------------------------------------- --------------------- ------------ -----------
Net decrease in cash and cash equivalents (473) (1,838) (428)
Cash and cash equivalents at start of
period/year 8,055 8,503 8,503
Exchange gains/(losses) 144 73 (20)
-------------------------------------------- --------------------- ------------ -----------
Cash and cash equivalents at end of
period/year 7,726 6,738 8,055
-------------------------------------------- --------------------- ------------ -----------
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 GBP455k (June
2021: GBP438k, December 2021: GBP821k) of which no interest was
capitalised (June 2021: GBP33k, December 2021: GBP32k) 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 GBP658k (June 2021: GBP121k,
December 2021: GBP376k) 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 2022
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
2022 2,431 44,178 (10) 15 2,228 (310) 49,243 97,775
------------------------- --------- --------- -------- ------------ ------------ --------- ---------- --------
Foreign exchange
translation gains
on investment in
subsidiaries - - - - 3,279 - - 3,279
Change in fair value of
hedging
instruments recognised
in other
comprehensive income - - - - - (3,141) - (3,141)
Hedging losses
reclassified to
profit or loss - - - - - 1,348 - 1,348
Tax relating to
effective portion
of changes in fair
value of cash
flow hedges net of
recycling - - - - - 450 - 450
Actuarial gain on
Defined Benefit
Pension Scheme - - - - - - 1,800 1,800
Tax relating to
actuarial gain
on Defined Benefit
Pension Scheme - - - - - - (450) (450)
Profit for the period - - - - - - 4,570 4,570
Total comprehensive
income for
the period - - - - 3,279 (1,343) 5,920 7,856
------------------------- --------- --------- -------- ------------ ------------ --------- ---------- --------
Transactions with owners
of the
Parent:
Options exercised - - 3 - - - (3) -
Equity-settled
share-based payments
net of tax - - - - - - 306 306
Dividends paid - - - - - - (2,131) (2,131)
Total transactions with
owners
of the Parent - - 3 - - - (1,828) (1,825)
------------------------- --------- --------- -------- ------------ ------------ --------- ---------- --------
Balance as at 30 June
2022 (Unaudited) 2,431 44,178 (7) 15 5,507 (1,653) 53,335 103,806
------------------------- --------- --------- -------- ------------ ------------ --------- ---------- --------
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 loss
on investment in
subsidiaries - - - - (623) - - (623)
Change in fair value of
hedging
instruments recognised
in other
comprehensive income - - - - - 570 - 570
Hedging gains
reclassified to
profit or loss - - - - - (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 for
the period - - - - (623) (580) 5,188 3,985
------------------------- --------- --------- -------- ------------ ------------ --------- ---------- --------
Transactions with owners
of the
Parent:
Options exercised - - 13 - - - 27 40
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
------------------------- --------- --------- -------- ------------ ------------ --------- ---------- --------
During the six months period ended 30 June 2022, 58,737 shares
vested (June 2021: 262,313) and were issued from the Zotefoams
Employee Benefit Trust ('EBT') following the exercise of these
options.
During the six months period ended 30 June 2022, 503,701 Long
Term Incentive Plan awards (June 2021: 335,191), 12,193 Deferred
Bonus Share Plan awards (June 2021: 14,790) and 31,489 share
options (June 2021: 40,690) were granted.
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 2022
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. The interim condensed consolidated
financial statements of the Group for the six months ended 30 June
2022 were authorised for issue in accordance with a resolution of
the directors on 8 August 2022.
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 2021 were approved by the Board of Directors on 6 April
2022 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 2022 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 do not include all the
information and disclosures required in the annual financial
statements and should be read in conjunction with the annual
financial statements for the year ended 31 December 2021, which
have been prepared in accordance with UK adopted international
accounting standards (IAS).
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
The Group has prepared the financial statements on the basis
that it will continue to operate as a going concern.
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. 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 2021, with the exception of changes in
estimates that are required in determining the provision for income
taxes.
4. FINANCIAL RISK MANAGEMENT
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 differs by business
unit. Polyolefin Foams generally experiences a strong H1, as in H2
many customers shut down for summer vacation, the manufacturing
sites shut down for annual planned maintenance and much of the
business closes for the period between Christmas and New Year.
Sales in the High-Performance Products ('HPP') business, on the
other hand, tend to be more H2 skewed, based on customer ordering
patterns. The mix of these business units in a year will impact the
seasonality of the Group's sales performance. Additionally, 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 tax and 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
thermoplastic elastomer. 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 Consolidated
--------------------- ---------------------------------------- ----------------------------------- ------------------------------- ------------------------
Six Months 30-Jun-22 30-Jun-21 30-Jun-22 30-Jun-21 30-Jun-22 30-Jun-21 30-Jun-22 30-Jun-21
ended (Unaudited)
---------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------ ------------- ---------------------- ---------------- ---------------- ----------------- --------------- -------------- ---------- ------------
Group revenue 34,286 27,309 23,706 19,573 1,053 1,282 59,045 48,164
Segment
profit/(loss)
pre-amortisation 1,720 1,345 6,458 3,899 (434) (10) 7,744 5,234
Amortisation
of acquired
intangible
assets - - - - (145) (124) (145) (124)
--------------------- ---------------------- ---------------- ---------------- ----------------- --------------- -------------- ---------- ------------
Segment
profit/(loss) 1,720 1,345 6,458 3,899 (579) (134) 7,599 5,110
Foreign exchange
gains - - - - - - 59 600
Unallocated
central costs - - - - - - (1,097) (1,057)
--------------------- ---------------------- ---------------- ---------------- ----------------- --------------- -------------- ---------- ------------
Operating profit 6,561 4,653
Financing costs - - - - - - (899) (613)
Share of loss
from joint
venture - - - - - - 42 (36)
--------------------- ---------------------- ---------------- ---------------- ----------------- --------------- -------------- ---------- ------------
Profit before
taxation 5,704 4,004
Taxation - - - - - - (1,134) (842)
--------------------- ---------------------- ---------------- ---------------- ----------------- --------------- -------------- ---------- ------------
Profit for
the period - - - - - - 4,570 3,162
Depreciation
and Amortisation:
Depreciation 2,582 2,402 482 528 147 50 3,211 2,980
Depreciation
of right-of-use
assets 155 152 34 47 70 66 259 265
Amortisation 221 291 69 129 145 124 435 544
Capital expenditure:
Property, plant
and equipment
(PPE) 1,917 2,039 382 447 183 479 2,482 2,965
Intangible
assets 50 38 17 13 727 277 794 328
--------------------- ---------------------- ---------------- ---------------- ----------------- --------------- -------------- ---------- ------------
Unallocated assets and liabilities are made up of corporation
tax and deferred tax assets and liabilities.
Polyolefin Foams HPP MEL Consolidated
--------------------- ---------------------- ---------------------- ---------------------- ----------------------
Six Months 30-Jun-22 31-Dec-21 30-Jun-22 31-Dec-21 30-Jun-22 31-Dec-21 30-Jun-22 31-Dec-21
ended (Unaudited)
---------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Segment Assets 118,214 107,633 42,450 40,189 11,912 9,601 172,576 157,423
Unallocated
Assets - - - - - - 430 492
--------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Assets 173,006 157,915
Segment liabilities (45,533) (40,795) (18,151) (15,224) (1,688) (883) (65,372) (56,902)
Unallocated
liabilities - - - - - - (3,828) (3,238)
--------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities (69,200) (60,140)
Geographical segments
Polyolefin Foams, HPP and MEL are managed on a worldwide basis
but operate from the UK, Europe, USA and Asia 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 Europe North Rest Total
Kingdom America of World
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
----------------------------- ------------ ------------ ------------ ------------ ------------
For the period ended
30 June 2022
Group revenue from
external customers 6,113 16,624 12,943 23,365 59,045
Non-current assets 43,431 20,036 39,539 451 103,457
Capital expenditure
- PPE 1,376 65 1,019 22 2,482
----------------------------- ------------ ------------ ------------ ------------ ------------
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
----------------------------- ------------ ------------ ------------ ------------ ------------
Major customers
Revenue from one customer of the Group located in "Rest of
World" contributed GBP19,540k (2021: GBP16,496k) 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-22 30-Jun-21
(Unaudited) (Unaudited)
GBP'000 GBP'000
---------------------------- ------------ ------------
Sale of foam 57,560 46,793
Sale of equipment 568 462
Licence and royalty income 917 909
---------------------------- ------------ ------------
Group Revenue 59,045 48,164
---------------------------- ------------ ------------
7. INCOME TAX EXPENSE
Six months ended
--------------------------
30-Jun-22 30-Jun-21
(Unaudited) (Unaudited)
GBP'000 GBP'000
UK corporation tax 774 259
Overseas tax 56 39
-------------------- ------------ ------------
Total current tax 830 298
Deferred tax 304 544
-------------------- ------------ ------------
Income tax expense 1,134 842
-------------------- ------------ ------------
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 2022 is 19.88% (the estimated average annual
tax rate for the period ended 30 June 2021 was 21.04%).
8. DIVIDS
A dividend of GBP2,131k (2021: GBP2,058k) that relates to the
period to 31 December 2021 was paid in May 2022.
An interim dividend of 2.18 pence per share was approved by the
Board of Directors on 8 August 2022 (2021: 2.10 pence per share).
It is payable on 7 October 2022 to shareholders who are on the
register at 9 September 2022. This interim dividend, amounting to
GBP1,060k (2021: GBP1,018k), 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 2022.
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 GBP4,570k (2021: GBP3,162k) 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 2022 was 138,151 (2021: 196,888). 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-22 30-Jun-21
(Unaudited) (Unaudited)
-------------------------------------------- ------------ ------------
Weighted average number of ordinary shares
in issue(1) 48,490,547 48,467,429
Deemed issued for no consideration 1,129,822 973,546
-------------------------------------------- ------------ ------------
Diluted number of ordinary shares issued 49,620,369 49,440,975
-------------------------------------------- ------------ ------------
(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 2022 45,776 110,791 3,871 4,466 164,904
Additions - 201 23 2,258 2,482
Disposals - (9) (560) - (569)
Transfers 219 3,704 113 (4,036) -
Effect of movement in foreign
exchange 1,338 4,428 133 166 6,065
At 30 June 2022 47,333 119,115 3,580 2,854 172,882
------------------------------- --------------- --------------- -------------- -------------- --------
Accumulated depreciation
At 1 January 2022 14,160 56,361 2,982 - 73,503
Depreciation charge 696 2,357 158 - 3,211
Disposals - (9) (560) - (569)
Effect of movement in foreign
exchange 590 1,419 101 - 2,110
At 30 June 2022 15,446 60,128 2,681 - 78,255
------------------------------- --------------- --------------- -------------- -------------- --------
Net book value
At 31 December 2021 31,616 54,430 889 4,466 91,401
------------------------------- --------------- --------------- -------------- -------------- --------
At 30 June 2022 31,887 58,987 899 2,854 94,627
------------------------------- --------------- --------------- -------------- -------------- --------
11. INTEREST-BEARING LOANS AND BORROWINGS
30-Jun-22 31-Dec-21
-----------------------------
(Unaudited) (Audited)
-----------------------------
GBP'000 GBP'000
----------------------------- ------------ ----------
Current bank borrowings 44,743 26,564
Non-current bank borrowings - 14,710
------------------------------- ------------ ----------
44,743 41,274
----------------------------- ------------ ----------
In March 2022, the Group completed a bank refinancing and
selected Handelsbanken and NatWest, the incumbents, to continue as
its lenders. Under the terms of the new facility, the Group's gross
finance facility are a GBP50m multi-currency revolving credit
facility, with a GBP25m accordion, on a 4+1 tenor, and an interest
rate ratchet on slightly improved terms to the previous facility,
with a small element related to the achievement of sustainability
targets. The finance cost and leverage covenants remain in place,
with the former remaining at 4:1 and the latter increasing to 3.5:1
from 3.0:1
At 30 June 2022, the Group has utilised GBP45.4m (31 December
2021: GBP41.6m) of its multi-currency revolving credit facility of
GBP50m. The total amount of GBP45.4m, repayable on the last day of
each loan interest period, which is either of a 3 or 6 month
duration, includes GBP0.7m origination fees paid up front and being
amortised over 4 years.
The interest rate on debt facility ranges between 1.60% and
2.67% in H1 (2021 between 1.60% and 2.35%).
12. RELATED PARTY TRANSACTIONS
There were no material related party transactions requiring
disclosure for the periods ended 30 June 2022 and 30 June 2021.
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 2022 and 30 June 2021:
Level 1 Level Level Total
2 3
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
30-Jun-22 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- ------------ ------------ ------------
Assets
Forward exchange contracts - 1 - 1
---------------------------- ------------- ------------ ------------ ------------
Total assets - 1 - 1
---------------------------- ------------- ------------ ------------ ------------
Liabilities
Forward exchange contracts - (2,799) - (2,799)
---------------------------- ------------- ------------ ------------ ------------
Total liabilities - (2,799) - (2,799)
---------------------------- ------------- ------------ ------------ ------------
Level 1 Level Level Total
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)
---------------------------- ------------- ------------ ------------ ------------
The forward exchange contracts have been measured at fair value
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 measure
an instrument at fair value 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 (2021: 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
Financial assets and liabilities measured at amortised cost
The fair value of borrowings is as follows:
30-Jun-22 30-Jun-21
(Unaudited) (Unaudited)
GBP'000 GBP'000
------------- ------------ ------------
Current 44,743 26,717
Non-current - 14,272
------------- ------------ ------------
Total 44,743 40,989
------------- ------------ ------------
The fair value of financial asset excluding cash and cash
equivalents is as follows:
30-Jun-22 30-Jun-21
(Unaudited) (Unaudited)
GBP'000 GBP'000
------------------------------- ----------------------------------------- -------------------
Non-current trade receivables 59 35
Trade Receivables 34,253 26,112
------------------------------- ----------------------------------------- -------------------
Total 34,312 26,147
------------------------------- ----------------------------------------- -------------------
14. CAPITAL COMMITMENTS
Capital expenditure commitments of GBP1,403k (2021: GBP1,540k)
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.
16. STANDARDS ISSUED BUT NOT EFFECTIVE
i) New standards and amendments - applicable 1 January 2022
The following standards and interpretations apply for the first
time to financial reporting periods commencing on or after 1
January 2022:
Effective for accounting periods beginning on or Impact
after
----------------------------------------------------- ------------------------------------------------------ -------
Business Combinations - Reference to Conceptual 1 January 2022 None
Framework - Amendments to IFRS 3
Property, Plant and Equipment - Amendments to IAS16 1 January 2022 None
Provisions, Contingent Liabilities and Contingent 1 January 2022 None
Assets - Amendments to IAS 37
Annual Improvements to IFRS Standards 2018-2020 1 January 2022 None
Cycle
----------------------------------------------------- ------------------------------------------------------ -------
ii) Forthcoming requirements
As at 30 June 2022, the following standards and interpretations
had been issued but were not mandatory for annual reporting periods
ending on 30 June 2022.
Effective for accounting periods beginning on or Expected Impact
after
------------------------------------------------- ------------------------------------------------- ----------------
Income Taxes - Deferred Tax related to asset and TBC None
liabilities arising from a single transaction
- Amendments to IAS 12
Accounting Policies, Changes in Accounting TBC None
Estimates and Errors - Amendments to IAS 8
Classification of Liabilities as Current or TBC None
Non-current - Amendments to IAS 1
------------------------------------------------- ------------------------------------------------- ----------------
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END
IR UPUCCRUPPGRR
(END) Dow Jones Newswires
August 09, 2022 02:00 ET (06:00 GMT)
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