REG - Zotefoams PLC - Interim Results
06/08/2024 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240806:nRSF2597Za&default-theme=true
RNS Number : 2597Z Zotefoams PLC 06 August 2024
Zotefoams plc
Interim Report for the Six Months Ended 30 June 2024
Strong sales and HPP growth drives record H1 profit
6 August 2024 - Zotefoams plc ("Zotefoams", the "Company" or the "Group"), a
world leader in cellular materials technology, is pleased to announce its
interim results for the six months ended 30 June 2024.
Results highlights
· Record H1 sales performance, with Group revenue up 10% to £71.1m (HY 2023:
£64.6m) and by 13% at constant currency
- High-Performance Products (HPP) revenue up 37% to £36.1m (HY 2023: £26.4m)
· Record H1 earnings and continuing improvements in profit margins
- Gross margin up 40 bps to 33.2% (up 50 bps to 34.3% excl. MEL)
- Profit before tax up 12% to a record £8.3m (HY 2023: £7.4m)
- Profit before tax excl. MEL up 12% to a record £10.5m (HY 2023: £9.4m)
· Basic earnings per share up 12% to 12.89p (HY 2023: 11.53p)
· Strong balance sheet
- Improved cash generation from operations of £8.5m (HY 2023: £5.8m)
supporting higher levels of growth investment
· Interim dividend increased by 4.4% to 2.38p per share (2023: 2.28p per share)
Strategic highlights
· Continued strong performance in Footwear, driven by our partnership with Nike
· Significant progress in ReZorce(®), a transformative opportunity for the
consumer packaging market with our recyclable barrier packaging technology.
Our initial target market is liquid paperboard (LPB) cartons, where an
estimated 300 billion cartons are currently made globally per annum
- Announced Refresco, the world's largest independent beverage packager, as
joint development partner.
- Preparing for market trial of 150,000 sterile juice cartons in Western
Europe
- Exploring strategic investment partnership during H2 2024 to facilitate the
scale-up and delivery of the ReZorce solution globally
· Future organic growth in North America supported by capital investment on a
second low-pressure vessel on track for mid-2025 commissioning
· Expanded technical capabilities and growth potential in new and existing
markets through global alliance agreement signed with Suzhou Shincell New
Materials Co. Ltd., China
Financial summary
June 2024 June Change
2023
Revenue (£m) 71.1 64.6 10%
Gross margin (%) 33.2 32.8 40 bps
Operating profit(1) (£m) 9.7 8.5 14%
Operating margin (%) 13.6 13.1 50 bps
Profit before tax(1) (£m) 8.3 7.4 12%
Basic EPS(1) (p) 12.89 11.53 12%
Net debt (£m) 44.6 28.3 (58%)
Net debt (£m) covenant basis(2) 35.1 26.7 (31%)
Leverage ratio(3) 1.4 1.1 -
Interim dividend (p) 2.38 2.28 4.4%
(1) This is a reported number under UK adopted IAS and is after the deduction
of amortisation of acquired intangibles amounting to £0.126m (HY 2023:
£0.131m)
(2) Net debt (covenant basis) is that defined under the bank facility,
adjusted for the impact of IFRS16. The main adjustment is the elimination of
Shincell (£7.1m), treated as a right-of-use asset and a corresponding lease
liability
(3) Leverage is not an IFRS measure and is that defined under the bank
facility, with net debt, adjusted for IFRS16, at the end of the period divided
by the preceding 12 months' EBITDA, adjusted for IFRS2 and IFRS16
Commenting on the results and the outlook, Ronan Cox, Group CEO, said:
"I am pleased to report a strong first half performance for Zotefoams,
demonstrating the resilience and growth potential of our business. Group
revenue grew by 10% to £71.1m, driven primarily by exceptional demand from
Nike, where underlying platform growth was amplified by an Olympic year and
inventory build at Tier 1 suppliers. Coupled with our focus on operational
efficiency, we achieved an increase in profit before tax of 12% to a record
£8.3m (HY 2023: £7.4m). This figure includes cost an operating loss of
£2.2m (HY 2023: £2.0m) in our MEL business as we progress our ReZorce
recyclable barrier packaging technology.
ReZorce is a transformative opportunity for the consumer packaging market. In
May, we announced Refresco, the world's largest independent beverage packager,
as our joint development partner, generating significant industry interest
globally. We are now preparing for a trial of sterile juice cartons in Western
Europe and in parallel are holding discussions with potential strategic
partners to drive this initiative forward.
In May, we signed a global alliance agreement with Shincell, that combines our
century of experience in nitrogen-expanded foams with their innovations in
foaming technology. It enhances our technical capabilities and allows us to
leverage their technology to get closer to our key customers and enter new
markets, further strengthening our competitive position.
We enter the second half with positive momentum and with the expectation that
market trends seen in H1 will remain largely consistent going into the latter
part of the year. Footwear demand is expected to normalise over the coming
months, as some of the near-term factors benefiting H1 work through, which
will free up capacity to supply markets in both North America and Europe. We
will continue to focus on cost efficiency, supported by a stable outlook for
energy and polymer input prices.
The Board is delighted with the Group's continued progress, with the benefits
of our diverse market profile providing both stability and opportunities to
unlock growth in a mixed economic backdrop. We remain confident that the
Company will deliver a full year performance in line with market expectations,
underpinned by the strong first half performance, and optimistic that we will
continue our positive momentum in the medium term."
Enquiries:
Zotefoams plc +44 (0) 208 664 1600
Ronan Cox, 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(®) polyolefin and ZOTEK(®)
high-performance foams, Zotefoams sells to diverse markets worldwide.
Zotefoams uses its own cellular materials to manufacture T-FIT(®) 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(®) 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, Stilling, Denmark
(microcellular foam technology) and Jiangsu Province, China (T-FIT).
www.zotefoams.com (http://www.zotefoams.com)
AZOTE(®), ZOTEK(®), ReZorce(®) and T-FIT(®) are registered trademarks of
Zotefoams plc.
Results overview
Group revenue in the period increased £6.4m, or 10%, to £71.1m (HY 2023:
£64.6m). At constant currency, Group revenue increased £8.3m, or 13%, to
£72.9m.
Gross profit increased £2.4m, or 11%, to £23.6m (HY 2023: £21.2m) and gross
margin improved to 33.2% (HY 2023: 32.8%). Operating profit for the period
increased £1.2m, or 14%, to £9.7m (HY 2023: £8.5m). Profit before tax
increased £0.9m, or 12%, to £8.3m (HY 2023: £7.4m) and basic earnings per
share increased 1.36p, or 12%, to 12.89p (HY 2023: 11.53p). Operating profit
was negatively impacted by £0.4m of currency headwind (HY 2023: positively
impacted by £1.2m of currency tailwind).
The underlying foams business, which comprises the Polyolefin Foams and HPP
business units, achieved a 12% increase in sales, up £6.5m to £70.5m (HY
2023: £64.0m), a 13% increase in operating profit, up £1.4m to £11.8m (HY
2023: £10.5m) and a profit before tax increase of 12%, up £1.1m to £10.5m
(HY 2023: £9.4m).
Cash generated from operations was up £2.6m to £8.5m (HY 2023: £5.8m). On
an IFRS basis, net debt after the first six months of the year was up £13.0m
to £44.6m (31 December 2023: £31.6m; 30 June 2023: £28.3m). However, over
half of this increase is led by the opportunity arising from our alliance
agreement with Suzhou Shincell New Materials Co. Ltd, which requires
recognition under IFRS 16. On a bank covenant basis, see full explanation in
section "Net debt and covenants", net debt was up £4.9m in the period to
£35.1m (31 December 2023: £30.2m; 30 June 2023: £26.7m). The leverage
multiple (net borrowings to EBITDA, see section "Net debt and covenants" for
definition) at the end of the period was 1.4. (31 December 2023: 1.1) and
financial headroom at 30(th) June 2024 was £14.6m.
The Board remains confident in the cash generation of the business and an
interim dividend of 2.38p per share has been approved by the Board (HY 2023:
2.28p per share).
Business unit review
Markets
Zotefoams' speciality materials are used in a wide variety of applications
globally. Our main markets are footwear, 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 into medical, industrial
and other markets.
In the first half of 2024, we delivered 10% reported revenue growth (13% at
constant currency), with increased volumes from the higher margin HPP business
offsetting lower volumes and an unfavourable sales mix in the Polyolefin Foams
business, and after foreign exchange rate headwinds that would otherwise have
increased revenue by a further 3%. Demand grew in the three main HPP markets
of Footwear, ZOTEK(®) F technical foams and T-FIT(®) insulation during the
period. Footwear was our best performer, however, with volume growth
generating increased revenue of 40% compared with H1 2023 and accounting for
44% of Group sales (HY 2023: 34%).
Polyolefin Foams
Polyolefin foams represented 48% of Group revenue (HY 2023: 58%), with segment
revenue decreasing 9% to £34.4m (HY 2023: £37.7m) and sales volumes
decreasing 4%. At constant currency, segment revenue was £35.1m.
In Continental Europe (43% of segment sales) revenue decreased 15% with
volumes decreasing 13% versus the comparative period, and in the UK (16% of
segment sales), revenue and volume decreased by 12%. Mixed demand conditions,
combined with some customers managing down their inventory holdings,
contributed to volume reduction in the period and the Group also made
proactive decisions around the level of seasonal H1 business in order to
manage margins and Croydon plant capacity. This was partly offset by stronger
performance at automotive and aviation customers. In North America (37% of
segment sales), revenue increased 13%, driven by growth at Zotefoams MidWest,
Tulsa, which focuses on the construction market and where the business is
investing in the capability to move further downstream. We continue to work
with customers in all markets and offer more cost-effective materials to
combat price inflation. Often this aligns with improved sustainability across
the supply chain, given that Zotefoams has solutions offering foams with
lower-density or 30% recycled content, both of which reduce polymer and energy
usage.
In the period, the average cost of low-density polyethylene (LDPE), our main
raw material, was slightly below the long-run historical average polymer
pricing after falling significantly in 2019 and 2020, rising from 2021 and
peaking in Q2 2022. Energy prices have stabilised and are similar to the
average of the prior year comparative. In the current year, labour costs
across all geographies are likely to represent the largest inflationary
component within our cost base.
Segment profit decreased 35% to £3.2m (HY 2023: £5.0m), yielding a segment
profit margin of 9% (HY 2023: 13%). At constant currency, segment profit was
£3.4m. In the UK, Europe and Asia, segment margin was relatively unchanged
from the prior year comparative period, with profits reducing in line with
reduced revenue. The USA operations experienced margin decline as the
investment in employee headcount and capability are yet to be recovered by
higher sales and further improvements in operational efficiency. While we have
made operational progress, we continue to see opportunities to reduce costs
and release capacity to meet medium-term regional demand. In this regard, we
announced in our 2023 results the investment in a second low-pressure vessel,
which will overcome some of the inefficiencies generated by the existing
ageing asset while also adding capacity, and this is on track for
commissioning around the middle of 2025.
High-Performance Products ("HPP")
HPP represented 51% of Group revenue in the period (HY 2023: 41%), with
segment revenue increasing 37% to £36.1m (HY 2023: £26.4m). This is the
first time HPP sales have exceeded those of the Polyolefin Foams business and
reflects the success of our mix enrichment strategy. At constant currency,
segment revenue was £37.2m. Sales volumes in HPP were also 37% higher than
the comparative prior year period.
Sales of our largest application, footwear, showed considerable growth in the
period, increasing 40% to £31.1m (HY 2023: £22.3m). This is led by
significant growth in existing Nike platforms, amplified by higher demand
during an Olympic year, the addition of basketball sales, and increased orders
from Tier 1 suppliers resulting from a rebuilding of inventory. We expect this
growth to continue in H2 2024 before moderating to more normalised levels in
2025.
Other than footwear products, we offer a range of foamed sheet materials to
technically demanding applications globally under the ZOTEK(®) brand. The
main market is currently aviation, where insulation and fire performance at
minimal weight is paramount, driven by safety and sustainability. Other
markets include space, healthcare, packaging, military and personal
protection. Zotefoams offers a variety of foams with specific properties,
delivered through a combination of raw material selection and our unique
foaming technology. Sales of ZOTEK F materials grew by 3% to £1.8m (HY 2023:
£1.7m), and as with previous years, sales will be more weighted towards the
second half of the year.
In April 2024, Zotefoams announced an exclusivity agreement with Design Blue
Limited for high performance impact protection solutions using ZOTEK(®) N,
our nylon-based foam. These products will sell under the D3O and Delta Three
Oscar brands and be used for the defence and law enforcement sectors. In the
period, sales grew to £0.4m (HY 2023: £0.1m).
T-FIT insulation is made using Zotefoams' own HPP products and is designed for
clean processing environments such as in pharmaceutical, biotech and food and
drink manufacture. Sales grew 23% in the period to £2.7m (HY 2023: £2.2m),
with a stronger European and US performance offsetting weakening China pharma
demand. T-FIT's sales are also weighted more towards the second half of the
year.
A significant milestone in the period was the signing of a global alliance
agreement with Suzhou Shincell New Materials Co, Ltd ("Shincell") in May. The
alliance consists of agreements on technology licensing from Shincell to
Zotefoams, development and market co-operation, and regional product
distribution agreements, where certain products from Shincell's unique
technology will be marketed alongside Zotefoams' existing and future product
range. This alliance combines our century of experience in nitrogen-expanded
foams with Shincell's innovations in foaming technology. It extends our
technical capabilities, enabling us to get closer to our key customers, offer
a wider scope of products and enhance our growth potential in both new and
existing markets. Our collaboration has begun at pace, with several visits
already to the China facilities. This alliance is accounted for under IFRS 16
as a right-of-use asset, being depreciated over a period of ten years in line
with the Group's assessment of useful life, and as a liability, being paid
down over five years. Given the payment term, it has been discounted using the
Group's incremental rate of borrowing.
The segment profit in HPP reflects a mix of products and markets at different
stages of development. Segment profit in HPP increased by 42% to £10.2m (HY
2023: £7.2m), yielding a profit margin of 28% (HY 2023: 27%), driven
primarily from the growth in Footwear. At constant currency, segment profit
was £10.9m. Most HPP sales are in US dollar, while costs are in a mixture of
sterling, US dollar and euro, so the weakening US dollar during the period had
a £0.7m negative impact on profitability, before Group hedging.
MuCell Extrusion LLC ("MEL")
MEL, which develops and licenses microcellular foam technology and sells
related machinery, accounted for 1% (HY 2023: 1%) of Group revenue in the
period, with segment revenue of £0.6m (HY 2023: £0.6m). In the past two
years, we have prioritised investment in ReZorce(®) barrier packaging
technology over our traditional MEL polymer-reduction technology.
ReZorce is a mono-material, and hence fully recyclable, solution for packaging
consumer products. Importantly, it is also "circular" as it uses
post-consumer recycled content from similar packaging in its production. Our
target market is liquid paperboard (LPB) cartons, where an estimated 300
billion cartons are currently made globally per annum. An LPB carton is made
using a combination of different materials, with most using a combination of
wood products, aluminium and plastic in the pack construction (known as
composite packaging) and with almost no recycled content in their manufacture.
LPB cartons cannot be easily recycled due to their composite structure. Most
are not recycled, with a minority being "downcycled" into lower-grade
products, and none are recycled back into other cartons. ReZorce, therefore,
offers an improvement in both carbon footprint and recyclability to a global
industry.
To facilitate adoption, we are developing a complete "end-to-end" solution to
demonstrate the commercial viability of the product to customers and potential
strategic partners. Our pilot-scale facility in Denmark manufactures a ReZorce
substrate which is then converted into a printed sheet along with the creasing
needed to fold into a carton. This is the product which would be sold to a
global industry using specialist machinery to fill with liquid such as juice
in a sterile environment. Our development has extended into this filling and
packaging process to ensure our ReZorce product is compatible with existing
machinery with as few modifications as possible, in order to allow the use of
existing installed infrastructure for commercial scale-up. Post consumer-use
product recycling depends on local facilities, but in the UK and in much of
continental Europe the ReZorce product can be recycled in common
kerbside/domestic recycling streams.
We have made further progress in the first six months of this year, and in May
announced Refresco, the world's largest independent packager of beverages, as
our joint development partner. At this time, we also held a media launch event
which generated significant positive commentary from European and North
American packaging publications, leading to increased commercial interest
globally.
Much of our technical focus at this time is on refining our product and
production processes to ensure the consistency required for the production of
millions of packs through machinery which has been adapted to run LPB cartons.
As expected, this is an iterative process with good progress in all production
steps. The key remaining technical stage of the development process will be a
trial of approximately 150,000 sterile juice cartons on shelf in western
Europe.
Given the significant market opportunity of this disruptive technology, we are
seeking a strategic investor to facilitate the scale-up and delivery of the
ReZorce solution globally and have a number of ongoing engagements in this
regard. This process, which is being managed and advised by Mazzone & Co,
a US-based specialist in packaging M&A, is expected to run though the
second half of 2024, with further updates to be provided later in the year.
While our planned investment in ReZorce impacts short-term profitability and
consumes cash, we believe it has the potential to position the Group well for
future growth in sustainable packaging solutions. There remains further work
to do to demonstrate the commercial viability of the product, but we remain
confident in its potential to create value for shareholders and contribute to
a more sustainable future, particularly if we can identify the right partner
to support realisation.
MEL reported a segment loss after amortisation costs of £2.2m (HY 2023: loss
£2.0m) as investment continued into ReZorce. In May 2024, we reached
agreement with Censco LLC that will have them supply and service much of the
machinery for the business activity that we engaged in prior to embarking on
the ReZorce project, operating under license to manufacture proprietary gas
injection technology that was previously produced in-house at MEL's USA
location. This will allow the MEL team to dedicate themselves fully to
ReZorce. The agreement includes a sale of inventory which completed in July
and simplifies our MEL operations. During the period, we capitalised £2.6m in
the period, split £1.8m (HY 2023: £0.8m) in intangible development costs,
that mostly reflect the team of industry experts delivering this opportunity,
and £0.8m (HY 2023: £0.2m) in tangible assets that mostly represent payments
on the machinery required to achieve end-to-end production capability. Since
the inception of this initiative, the Group has capitalised a total of £10.2m
(31 December 2023: £7.6m).
The net book value of MEL's tangible and intangible fixed assets at 30 June
2024 is £13.2m (31 December 2023: £11.0m; 30 June 2023: £9.7m). This
includes intangible assets of £10.6m (31 December 2023: £8.9m; 30 June 2023:
£7.5m), including £3.2m of goodwill and technology that arose on the
acquisition of MEL (31 December 2023: £3.3m; 30 June 2023: £3.4m). It also
includes £2.6m (31 December 2023: £2.1m; 30 June 2023: £2.2m) of tangible
assets. 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, 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 the 2023 Zotefoams
Annual Report, setting out the Group's ESG management framework, goals and
performance to date. This will be updated in the next Annual Report to be
published in April 2025.
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. We
have a global workforce (fulltime equivalent) of 632 people (HY 2023: 580
people), 45% (HY 2023: 43%) of whom are located outside the UK.
On behalf of the Board, we would like to thank all our employees for their
continued contributions and commitment to Zotefoams.
First thoughts from Ronan Cox, new Group CEO
First impressions
Joining Zotefoams presented an irresistible opportunity. The company's unique
position, built on proprietary cellular materials technology refined over a
century, provides an exceptional foundation for growth. This longevity
demonstrates not just resilience, but also Zotefoams' capacity for innovation
and adaptation.
What particularly excites me is the diversity of our market presence. Serving
nearly 20 different end markets offers stability and significant growth
potential, both with our existing foam customers and within downstream
applications. This wide-ranging engagement opens doors for innovation in both
our products and processes, allowing us to build upon our solid foundation and
push the boundaries of what is possible in cellular materials.
Coupled with a strong balance sheet, we have the flexibility to pursue a range
of growth and innovation avenues at any time. The potential of projects like
ReZorce further underscores our commitment to sustainable solutions. This
blend of established strength and future potential, underpinned by unique
technology and a diverse market presence, presents an exceptional opportunity
to drive sustainable growth and create substantial value for our stakeholders.
A focus on growth
Since becoming Group CEO just over 11 weeks ago, my focus has been on refining
Zotefoams' strategic direction to optimise the Group's long term growth
potential. Central to this effort will be a market-focused organisational
structure, ensuring Zotefoams is best able to serve its markets while
maintaining operational excellence across the Group.
Our strategy will centre around a focus on key markets that offer the greatest
potential for growth and profitability. By concentrating our efforts in this
way, we aim to deepen Zotefoams' market penetration, foster stronger customer
relationships, and drive innovation tailored to specific industry needs.
Our aim will be to reach new customers and markets as effectively as possible,
thereby ensuring we capture more value across the supply chain.
Innovation has been a key component of Zotefoams' success and will remain at
the heart of our strategy. We will seek to align this innovation approach to
our market strategy, with the aim of ensuring that Zotefoams remains at the
forefront of cellular materials technology, continually pushing the boundaries
of what is possible in our industry.
Our recent technology partnership with Shincell opens up exciting
possibilities, particularly in strengthening Zotefoams' relationship with key
customers like Nike. Our aims are to leverage this new technology, to increase
the flexibility in our manufacturing model and bring us physically closer to
customers' innovation centres and manufacturing partners, fostering more
collaborative and responsive product development.
Alongside a refined commercial strategy, we also believe that opportunities
exist to accelerate our strategic ambition through investment, benefiting from
the Group's cash generative model.
By pursuing a multifaceted strategy, we aim to generate a wealth of
opportunities that will drive the long-term growth of our business. I believe
this approach will allow Zotefoams to capitalise on its strengths, explore new
avenues for expansion, and create substantial value for our stakeholders.
We look forward to sharing more details about our strategic plans in the
coming months.
Financial review
Currency review
As a predominantly UK-based exporter, and with the Group's fast-growing HPP
business invoiced almost entirely in US dollars, approximately 90% of
Zotefoams' sales are denominated in currencies other than sterling, mostly the
US dollar and euro. 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 these 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 to 30 Jun 24 6 months to 30 Jun 23 12 months to 31 Dec 23
Euro to GBP - period average 1.167 1.141 1.150
Euro to GBP - period-end spot 1.182 1.164 1.150
USD to GBP - period average 1.264 1.233 1.243
USD to GBP - period-end spot 1.264 1.263 1.271
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, which
mostly relate to the Group's HPP sales, where further hedging activities are
taken although their accuracy is subject to the timing of customer receipts.
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 £1.8m below those adjusted at constant
currency (HY 2023: £3.3m above). The net profit effect of this on the Group,
prior to any hedging activity, was unfavourable by approximately £0.9m (HY
2023 gain: £1.5m). Offsetting this, and included in administrative expenses,
was a gain of £0.5m (HY 2023 loss: £0.2m) from transactional hedging via
forward exchange contracts, which mostly occurs on USD-denominated footwear
receivables. The combined unfavourable impact of movements in foreign currency
on profitability in the period was £0.3m (HY 2023: favourable impact £1.1m).
Gross profit
Gross profit increased by £2.4m or 11% in the period to £23.6m (HY 2023:
£21.2m), on increased sales of £6.4m. Margin benefitted from improved sales
and mix but was offset by underlying annual pay increases of £0.5m across the
Group and investment in headcount of £0.8m, most notably in staff to support
growth at our Poland and USA operations. Raw material and energy prices
impacts were modest versus the prior period comparative. The Group was
negatively impacted by £1.1m of currency impact (HY 2023: benefitted from
£1.8m of favourable currency impact) before hedging, which is disclosed
separately under administrative expenses. The net impact of these movements
was an improvement in gross profit margin to 33.2% (HY 2023: 32.8%).
Distribution and administrative costs
Included within distribution expenses in the Group's income statement are
sales, marketing, despatch and warehousing costs. These costs increased 15% to
£4.6m (HY 2023: £4.0m), led by salary inflation, headcount investment in the
USA and global marketing.
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 6% to £9.3m, (HY
2023: £8.8m). Stripping out FX hedging movements, costs increased 18% to
£9.9m (HY 2023: £8.4m), largely reflecting salary inflation and headcount
additions, increased variable pay accruals and Board changes. See the currency
review for further details of FX-related variances.
Net finance costs
Net finance costs increased to £1.4m (HY 2023: £1.1m) and included interest
income of £0.1m (HY 2023: £0.1m). Within the interest charge, £0.05m (HY
2023: £0.05m) relates to the Company's Defined Benefit Scheme pension
obligation and £0.1m (HY 2023: nil) relates to the interest charge on the
capitalised cost of the Shincell global alliance agreement. The remaining
increase relates to the increasing debt level and increase in lending rates in
the US dollar and euro, the currencies of the primary borrowings of the Group.
Taxation and earnings per share
The income tax expense for the period increased 11% to £2.0m (HY 2023:
£1.8m). 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
2024 is 24.21% (estimated average annual tax rate for the year used at 30 June
2023: 24.38%).
Basic earnings per share was 12.89p (HY 2023: 11.53p) an increase of 12%,
while diluted earnings per share was 12.63p (HY 2023: 11.28p), also an
increase of 12%.
Cash flow
Cash generated from operations was £8.5m (HY 2023: £5.8m). Included in this
was a net increase in working capital in the period of £5.9m (HY 2023: net
increase of £6.5m). Accounts receivable increased £3.3m in the period (HY
2023: increased £2.8m), reflecting higher revenues and the timing of
collections on some accounts. Inventories increased £5.1m in the period (HY
2023: increased £4.0m), almost half of which relates to Footwear products to
meet expected Q3 demand and closely followed by higher ZOTEK(®) inventory in
line with agreed purchase requirements as well as following a doubling of the
purchase price, as highlighted in the 2023 Annual Report. Together, these two
product lines account for 80% of the increase and 49% of the period-end
inventory holding. Accounts payable increased £2.5m (HY 2023: increased
£0.3m) on increased activity and similar terms.
Capital expenditure in the period was £8.1m (HY 2023: £2.6m), of which
£2.0m (HY 2023: £1.0m) related to intangibles, mostly arising from the
capitalisation of ReZorce development costs. The rate of capital expenditure
across the Group is expected to accelerate in H2 2024 as the Group acquires
two major pieces of equipment for its ReZorce opportunity and makes progress
on its second low-pressure vessel installation in the USA. Lease payments
increased in the period, driven by the first payment to Shincell (£0.6m), and
a final dividend of £2.4m (HY 2023: £2.2m) was paid during the period.
Net debt and covenants
The Group's gross finance facility, held with our partner banks Handelsbanken
and NatWest, comprises a £50m multi-currency revolving credit facility with a
£25m accordion and has an end term date of March 2027. It includes an
interest rate ratchet linked to leverage on a six-monthly basis and has a
small element related to the achievement of annual sustainability targets.
Net debt (cash less bank borrowings and lease liabilities) increased by
£13.0m from the start of the period to £44.6m at 30 June 2024 (31 December
2023: £31.6m; 30 June 2023: £28.3m). Under the bank covenant definition of
net debt, which adjusts for the impacts of IFRS 16, most notably the Shincell
lease liability of £7.1m, net debt increased by £4.9m in the six months to
£35.1m (31 December 2023: £30.2m, 30 June 2023: £26.7m), as a result of the
investment in working capital and fixed assets as noted in the section "Cash
flow" above. Headroom, which we define as the combination of amount undrawn on
the bank facility and cash and cash equivalents disclosed on the Statement of
Financial Position, amounted to £14.6m at 30 June 2024 (31 December 2023:
£19.4m).
The Group remained comfortably within its banking covenants, which are tested
semi-annually, throughout the first half of the year. As at 30 June 2024, the
multiple of EBITDA to net finance charges on a rolling 12-month basis was 9.4
(31 December 2023: 11.2; 30 June 2023: 12.8), against a covenant minimum of
4.0, and the multiple of net borrowings to EBITDA (leverage) on a rolling
12-month basis was 1.4 (31 December 2023: 1.2; 30 June 2023: 1.1), against a
covenant maximum of 3.5.
These covenant measures, which are not UK-adopted IAS, are defined in the
following table:
Net debt to EBITDA ratio (Leverage)
£m 12 months to 30 June 2024 12 months to 30 June 2023 £m At 30 June At 30 June
2024 2023
Profit after tax 9.9 11.0 Net debt per IFRS 44.6 28.3
Adjusted for: IFRS 16 leases (9.5) (1.6)
Depreciation and amortisation 8.2 8.5
Net finance costs 2.7 2.0 Net debt per bank 35.1 26.7
Share of result from joint venture (0.1) (0.0)
Equity-settled share-based payments 1.3 1.2
Taxation 3.8 2.9
Roundings 0.1 0.0
EBITDA 25.9 25.6 Leverage per bank 1.4 1.1
EBITDA to net finance charges ratio
£m 12 months to 30 June 2024 12 months to 30 June 2023 £m 12 months 12 months
to 30 June to 30 June
2024 2023
EBITDA, as above 25.9 25.6 Finance costs 2.9 2.1
Finance income (0.2) (0.1)
EBITDA to net finance charges 9.4 12.8 Net finance charges 2.7 2.0
Post-employment benefits
The last full actuarial valuation of the DB Scheme, closed to new members
since 2001, took place as at 5 April 2023 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 £2.9m (previous triennial valuation: £7.7m).
As a result, the Company agreed with the Trustees to continue to make
contributions to the DB Scheme of £643,200 per annum to meet the shortfall by
31 July 2028. In addition, the Company pays the ongoing DB Scheme expenses of
£216,000 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 2023, the IAS19 deficit disclosed in
the Company accounts was calculated to be £2.7m. Over the period to 30 June
2024, the Scheme's invested assets have reduced by around £0.1m while the
liabilities have reduced by around £1.3m due to the increase in long dated
corporate bond yields. After taking these factors into account, the IAS19
deficit is estimated to have reduced by around £1.2m (i.e. from £2.7m as at
31 December 2023 to around £1.5m as at 30 June 2024).
Going Concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Strategic
Report of the 2023 Annual Report on pages 1 to 77 and the section entitled
Risk management and principal risks on pages 45 to 58. This Interim Report
provides information on business and financial performance for the six months
to 30 June 2024.
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 continue to draw 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 2.38p per share (HY 2023: 2.28p per share) will be paid
on 7 October 2024 to shareholders on the Company's register at the close of
business on 6 September 2024.
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 58, of the 2023 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 four
months prior to this Interim Report. Our investment in ReZorce technology
remains 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 2023 Annual Report. Broadly, we list these as operational
disruption, sustainability and climate change, global capacity management,
technology displacement, scaling-up international operations, loss of a key
customer and external.
Outlook
We enter the second half with positive momentum and with the expectation that
market trends seen in H1 will remain largely consistent going into the latter
part of the year. Footwear demand is expected to normalise over the coming
months, as some of the near-term factors benefiting H1 work through, which
will free up capacity to supply markets in both North America and Europe. We
will continue to focus on cost efficiency, supported by a stable outlook for
energy and polymer input prices.
The Board is delighted with the Group's continued progress, with the benefits
of our diverse market profile providing both stability and opportunities to
unlock growth in a mixed economic backdrop. We remain confident that the
Company will deliver a full year performance in line with market expectations,
underpinned by the strong first half performance, and optimistic that we will
continue our positive momentum in the medium term.
L Drummond R Cox
Chair Group CEO
6 August 2024 6 August 2024
ZOTEK(®), AZOTE(®), ReZorce(®) and T-FIT(®) 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 on the Zotefoams plc website:
www.zotefoams.com.
By order of the Board:
L Drummond R Cox
Chair Group CEO
6 August 2024 6 August 2024
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT FOR THE SIX MONTHS ENDED
30 JUNE 2024
Six months ended Year Ended
30-Jun-24 30-Jun-23 31-Dec-23
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'000
Revenue 6 71,060 64,631 126,975
Cost of sales (47,490) (43,404) (85,920)
Gross profit 23,570 21,227 41,055
Distribution costs (4,568) (3,977) (7,927)
Administrative expenses (9,340) (8,774) (17,993)
Operating profit 9,662 8,476 15,135
Finance costs (1,554) (1,218) (2,540)
Finance income 122 104 191
Share of profit from joint venture 59 32 54
Profit before income tax 8,289 7,394 12,840
Income tax expense 7 (2,006) (1,803) (3,598)
Profit for the period/year 6,283 5,591 9,242
Profit attributable to:
Equity holders of the Company 6,283 5,591 9,242
6,283 5,591 9,242
Earnings per share:
Basic (p) 9 12.89 11.53 19.00
Diluted (p) 9 12.63 11.28 18.55
The notes below form an integral part of these condensed consolidated interim
financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX
MONTHS ENDED 30 JUNE 2024
Six months ended Year ended
30-Jun-24 30-Jun-23 31-Dec-23
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Profit for the period/year 6,283 5,591 9,242
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains/(losses) on defined benefit pension schemes 768 200 (88)
Tax relating to items that will not be reclassified (192) (50) 22
Total items that will not be reclassified to profit or loss 576 150 (66)
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation losses on translation of foreign operations (94) (1,844) (1,885)
Change in fair value of hedging instruments (411) 307 1,712
Hedging gains reclassified to profit or loss (501) 186 (192)
Tax relating to items that may be reclassified 297 595 (575)
Total items that may be reclassified subsequently to profit or loss (709) (756) (940)
Other comprehensive expense for the period/year, net of tax (133) (606) (1,006)
Total comprehensive income for the period/year 6,150 4,985 8,236
Profit attributable to:
Equity holders of the Company 6,150 4,985 8,236
Total comprehensive income for the period/year 6,150 4,985 8,236
The notes below form an integral part of these condensed consolidated interim
financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
30-Jun-24 30-Jun-23 31-Dec-23
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'000
Non-current assets
Property, plant and equipment 10 93,347 90,525 91,743
Right-of-use assets 11 9,883 1,477 1,272
Intangible assets 11,111 8,022 9,418
Investments in joint venture 266 185 207
Trade and other receivables 14 40 110 70
Deferred tax assets 350 434 435
Total non-current assets 114,997 100,753 103,145
Current assets
Inventories 36,970 29,664 31,904
Trade and other receivables 14 36,315 32,009 33,002
Derivative financial instruments 14 331 1,431 1,264
Cash and cash equivalents 7,942 8,518 6,294
Total current assets 81,558 71,622 72,464
Total assets 196,555 172,375 175,609
Current liabilities
Trade and other payables (14,917) (13,818) (12,953)
Derivative financial instruments 14 (286) (117) (28)
Current tax liability (2,528) (1,875) (1,078)
Lease liabilities 11 (1,934) (607) (507)
Interest-bearing loans and borrowings 12 (43,055) (35,254) (36,527)
Total current liabilities (62,720) (51,671) (51,093)
Non-current liabilities
Lease liabilities 11 (7,536) (941) (827)
Deferred tax liabilities (4,529) (4,092) (5,270)
Post-employment benefits (1,506) (2,714) (2,656)
Total non-current liabilities (13,571) (7,747) (8,753)
Total liabilities (76,291) (59,418) (59,846)
Total net assets 120,264 112,957 115,763
Equity
Issued share capital 2,442 2,431 2,442
Share premium 44,178 44,178 44,178
Own shares held (12) (3) (12)
Capital redemption reserve 15 15 15
Translation reserve 3,930 4,065 4,024
Hedging reserve 45 803 660
Retained earnings 69,666 61,468 64,456
Total equity 120,264 112,957 115,763
The notes below form an integral part of these condensed consolidated interim
financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE SIX MONTHS
ENDED 30 JUNE 2024
Six months ended Year ended
30-Jun-24 30-Jun-23 31-Dec-23
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Cash flows from operating activities
Profit for the period/year 6,283 5,591 9,242
Adjustments for:
Depreciation and amortisation 4,154 4,145 8,217
Disposal of assets 68 12 4
Finance costs 1,432 1,114 2,349
Share of profit from joint venture (59) (32) (54)
Net exchange differences 236 (548) (641)
Equity-settled share-based payments 672 677 1,335
Taxation 2,006 1,803 3,598
Operating profit before changes in working capital and provisions 14,792 12,762 24,050
(Increase) in trade and other receivables (3,292) (2,758) (3,774)
(Increase) in inventories (5,094) (4,041) (6,279)
Increase/(decrease) in trade and other payables 2,494 292 (1,027)
Employee defined benefit contributions (430) (430) (859)
Cash generated from operations 8,470 5,825 12,111
Interest paid (1,283) (1,016) (2,082)
Income taxes paid (1,103) (914) (2,248)
Net cash flows generated from operating activities 6,084 3,895 7,781
Cash flows from investing activities
Interest received 122 104 191
Purchases of intangibles (1,970) (959) (2,739)
Purchases of property, plant and equipment (6,120) (1,622) (5,744)
Net cash used in investing activities (7,968) (2,477) (8,292)
Cash flows from financing activities
Proceeds from options exercised and issue of share capital 60 - -
Repayment of borrowings - (802) (1,231)
Proceeds from borrowings 6,750 - 1,609
Lease payments (1,003) (352) (753)
Dividends paid (2,382) (2,243) (3,350)
Net cash used in financing activities 3,425 (3,397) (3,725)
Net increase/(decrease) in cash and cash equivalents 1,541 (1,979) (4,236)
Cash and cash equivalents at start of period/year 6,294 10,594 10,594
Exchange gains/(losses) 107 (97) (64)
Cash and cash equivalents at end of period/year 7,942 8,518 6,294
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.
The net exchange differences of £236k (June 2023: £548k, December 2023:
£641k) within operating activities relate to the foreign exchange movement on
borrowings.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY FOR THE SIX
MONTHS ENDED 30 JUNE 2024
Share capital Share premium Own shares held Capital redemption reserve Translation reserve Hedging reserve Retained earnings Total equity
£`000 £`000 £`000 £`000 £`000 £`000 £`000 £`000
Balance as at 1 January 2024 2,442 44,178 (12) 15 4,025 660 64,455 115,763
Foreign exchange translation losses on investment in subsidiaries - - - - (94) - - (94)
Change in fair value of hedging instruments recognised in other comprehensive - - - - - (411) - (411)
income
Reclassification to income statement - administrative expenses - - - - - (501) - (501)
Tax relating to effective portion of changes in fair value of cash flow - - - - - 297 - 297
hedges, net of recycling
Actuarial gain on defined benefit pension scheme - - - - - - 768 768
Tax relating to actuarial gain on defined benefit pension scheme - - - - - - (192) (192)
Profit for the period - - - - - - 6,283 6,283
Total comprehensive income for the period - - - - (94) (615) 6,858 6,149
Transactions with owners of the Parent:
Options exercised - - - - - - 62 62
Equity-settled share-based payments net of tax - - - - - - 672 672
Dividends paid - - - - - - (2,382) (2,382)
Total transactions with owners of the Parent - - - - - - (1,648) (1,648)
Balance as at 30 June 2024 (Unaudited) 2,442 44,178 (12) 15 3,931 45 69,665 120,264
Share capital Share premium Own shares held Capital redemption reserve Translation reserve Hedging reserve Retained earnings Total equity
£`000 £`000 £`000 £`000 £`000 £`000 £`000 £`000
Balance as at 1 January 2023 2,431 44,178 (5) 15 5,909 (285) 57,295 109,538
Foreign exchange translation losses on investment in subsidiaries - - - - (1,844) - - (1,844)
Change in fair value of hedging instruments recognised in other comprehensive - - - - - 307 - 307
income
Reclassification to income statement - administrative expenses - - - - - 186 - 186
Tax relating to effective portion of changes in fair value of cash flow - - - - - 595 - 595
hedges, net of recycling
Actuarial gain on defined benefit pension scheme - - - - - - 200 200
Tax relating to actuarial gain on defined benefit pension scheme - - - - - - (50) (50)
Profit for the period - - - - - - 5,591 5,591
Total comprehensive income for the period - - - - (1,844) 1,088 5,741 4,985
Transactions with owners of the Parent:
Options exercised - - 2 - - - (2) -
Equity-settled share-based payments net of tax - - - - - - 677 677
Dividends paid - - - - - - (2,243) (2,243)
Total transactions with owners of the Parent - - 2 - - - (1,568) (1,566)
Balance as at 30 June 2023 (Unaudited) 2,431 44,178 (3) 15 4,065 803 61,468 112,957
During the six months ended 30 June 2024, 103,401 shares vested (June 2023:
48,995) and were issued from the Zotefoams Employee Benefit Trust ('EBT')
following the exercise of these options.
During the six months ended 30 June 2024, 418,894 Long Term Incentive Plan
awards (June 2023: 382,464), 75,340 Deferred Bonus Share Plan awards (June
2023: 52,447) and 9,537 share options (June 2023: 8,121) 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
MONTHS ENDED 30 JUNE 2024
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 2024 were authorised for issue in accordance with a resolution of the
directors on 5 August 2024.
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 2023 were approved by
the Board of Directors on 5 April 2024 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 2024 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 2023, 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 in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements for the
year ended 31 December 2023, except for the adoption of new standards
effective as of 1 January 2024 as disclosed in Note 17. The Group has not
adopted early any standard, interpretation or amendment that has been issued
but is not yet effective. Several amendments apply for the first time in 2024,
but do not have an impact on the interim condensed consolidated financial
statements of the Group. 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 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 2023 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, although it
not highly seasonal. The Polyolefin Foams business generally experiences a
stronger 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
Footwear part of the High-Performance Products ('HPP') business tends not to
be seasonal, while the ZOTEK(®) technical foams and T-FIT(®) businesses tend
to be skewed more towards H2, 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, Ronan Cox, 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(®) while technical insulation
products manufactured from certain materials are branded as T-FIT(®).
· MuCell Extrusion LLC ('MEL'): licenses microcellular foam technology and sells
related machinery. Recently, a variation of this technology has been used to
create ReZorce(®), a recyclable, mono-material barrier packaging solution.
Polyolefin Foams HPP MEL Consolidated
Six months ended (Unaudited) 30-Jun-24 30-Jun-23 30-Jun-24 30-Jun-23 30-Jun-24 30-Jun-23 30-Jun-24 30-Jun-23
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Group revenue 34,448 37,657 36,058 26,380 554 594 71,060 64,631
Segment profit/(loss) pre-amortisation of acquired intangibles 3,216 4,985 10,209 7,196 (2,038) (1,845) 11,387 10,336
Amortisation of acquired intangible assets - - - - (126) (131) (126) (131)
Segment profit/(loss) 3,216 4,985 10,209 7,196 (2,164) (1,976) 11,261 10,205
Foreign exchange gains/(losses) - - - - - - 565 (360)
Unallocated central costs - - - - - - (2,164) (1,369)
Operating profit 9,662 8,476
Financing costs - - - - - - (1,432) (1,114)
Share of loss from joint venture 59 32 - - - - 59 32
Profit before taxation - - - - - - 8,289 7,394
Taxation - - - - - - (2,006) (1,803)
Profit for the period - - - - - - 6,283 5,591
Depreciation and Amortisation:
Depreciation 2,496 2,647 663 503 266 257 3,426 3,407
Allocated depreciation of right-of-use assets 199 231 54 41 100 104 354 376
Unallocated depreciation of right-of-use assets - - - - - - 129 -
Amortisation 90 145 49 54 173 163 312 362
Capital expenditure:
Property, plant and equipment (PPE) 4,187 1,334 550 334 792 205 5,529 1,873
Intangible assets 79 41 46 17 1,846 902 1,971 960
Unallocated assets and liabilities are made up of corporation tax and deferred
tax assets, together with the recent addition Shincell, which offers
opportunities across both the Polyolefin and HPP businesses.
Polyolefin Foams HPP MEL Consolidated
Six months ended (Unaudited) 30-Jun-24 31-Dec-23 30-Jun-24 31-Dec-23 30-Jun-24 31-Dec-23 30-Jun-24 31-Dec-23
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Segment assets 115,897 110,374 55,996 50,456 16,688 14,344 188,581 175,174
Unallocated assets - - - - - - 7,974 435
Total assets 196,555 175,609
Segment liabilities (45,029) (37,631) (21,389) (14,363) (1,565) (1,504) (67,983) (53,498)
Unallocated liabilities - - - - - - (8,307) (6,348)
Total liabilities (76,290) (59,846)
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 Kingdom Europe North America Rest of World Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
£`000 £`000 £`000 £`000 £`000
For the period ended 30 June 2024
Group revenue from external customers 5,934 16,121 13,214 35,791 71,060
Non-current assets 51,855 20,941 41,990 211 114,997
Capital expenditure - PPE 1,430 1,106 2,993 - 5,529
For the period ended 30 June 2023
Group revenue from external customers 6,586 17,740 13,666 26,639 64,631
Non-current assets 41,762 20,454 38,233 304 100,753
Capital expenditure - PPE 1,157 197 519 - 1,873
Major customers
Revenues from one customer of the Group located in "Rest of World" contributed
£31,068k (2023: £22,271k) 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-24 30-Jun-23
(Unaudited) (Unaudited)
£'000 £'000
Sale of foam 70,505 64,037
Sale of equipment 406 433
Licence and royalty income 149 161
Group Revenue 71,060 64,631
7. INCOME TAX EXPENSE
Six months ended
30-Jun-24 30-Jun-23
(Unaudited) (Unaudited)
£'000 £'000
UK corporation tax 2,447 2,076
Overseas tax 107 149
Total current tax 2,554 2,225
Deferred tax (548) (422)
Income tax expense 2,006 1,803
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 2024 is
24.21% (the estimated average annual tax rate for the period ended 30 June
2023 was 24.38%).
8. DIVIDENDS
A dividend of £2,382k (2023: £2,243k) that relates to the period to 31
December 2023 was paid in June 2024.
An interim dividend of 2.38 pence per share was approved by the Board of
Directors on 5 August 2024 (2023: 2.28 pence per share). It is payable on 7
October 2024 to shareholders who are on the register at 6 September 2024. This
interim dividend, amounting to £1,163k (2023: £1,109k), 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 2024.
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 £6,283k
(2023: £5,591k) 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 2024
was 139,332 (30 June 2023: 58,135). 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-24 30-Jun-23
(Unaudited) (Unaudited)
Weighted average number of ordinary shares in issue(1) 48,735,829 48,472,869
Deemed issued for no consideration 1,022,777 1,082,961
Diluted number of ordinary shares issued 49,758,606 49,555,830
1 Own shares held by employee trusts have already been deducted.
10. PROPERTY, PLANT AND EQUIPMENT
Land and buildings Plant and equipment Fixtures and fittings Under construction Total
£'000 £'000 £'000 £'000 £'000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cost
At 1 January 2024 46,613 115,276 3,388 9,118 174,395
Additions 18 731 19 4,761 5,529
Disposals - (147) - - (147)
Transfers 1,853 2,679 382 (4,972) (58)
Effect of movement in foreign exchange (288) (9) 1 (19) (315)
At 30 June 2024 48,196 118,530 3,790 8,888 179,404
Accumulated depreciation
At 1 January 2024 17,059 62,872 2,721 - 82,652
Depreciation charge 724 2,554 148 - 3,426
Disposals - (79) - - (79)
Transfers - - - - -
Effect of movement in foreign exchange 7 47 4 - 58
At 30 June 2024 17,790 65,394 2,873 - 86,057
Net book value
At 31 December 2023 29,554 52,404 667 9,118 91,743
At 30 June 2024 30,406 53,136 917 8,888 93,347
11. LEASES
(i) Amounts recognised in the statement of financial position relating to
leases:
Right-of-use assets
Group
30-Jun-24 31-Dec-23
£'000 £'000
(Unaudited) (Unaudited)
Property 775 940
Equipment 1,484 332
Licences 7,624 -
Total right-of-use assets 9,883 1,272
Lease Liabilities
Group
30-Jun-24 31-Dec-23
£'000 £'000
(Unaudited) (Unaudited)
Lease liability falls due within 1 year 1,934 507
Lease liability falls due within 3 years 4,433 797
Lease liability falls due in more than 3 years 3,103 30
Total lease liabilities 9,470 1,334
Additions to the right-of-use assets during the financial year were £9,099k
(2023: £1,098k) for the Group. Within additions £7,752k related to licences
(£0k in 2023).
(ii) Amounts recognised in the income statement relating to leases:
Group
30-Jun-24 30-Jun-23
£'000 £'000
Property 175 187
Equipment 179 179
Licences 129 -
Total 483 366
Interest expenses (included in finance costs) 113 38
Expense relating to short-term leases (included in cost of sales and 62 44
administrative expenses)
Expense relating to leases of low-value assets that are not shown above as 32 32
short-term leases (included in administrative expenses)
The total cash outflow 1,003 364
Within interest expenses £73k related to licences (£0k in 2023), and within
total cash outflow £611k related to licences (£0k in 2023).
12. INTEREST-BEARING LOANS AND BORROWINGS
30-Jun-24 31-Dec-23
(Unaudited) (Audited)
£'000 £'000
Current bank borrowings 43,055 36,527
Total 43,055 36,527
In March 2022, the Group completed a debt refinancing and selected
Handelsbanken and NatWest, the incumbents, to continue as its lenders. Under
the terms of the new facility, secured against the property, plant and
equipment and trade receivables, the Group's gross finance facility consists
of a £50m multi-currency revolving credit facility with a £25m accordion.
With a 4+1 tenor, the extending year option was taken up in January 2023.
At 30 June 2024, the Group has utilised £43.1m (31 December 2023: £36.5m) of
its multi-currency revolving credit facility of £50m. The total amount of
£43.1m, repayable on the last day of each loan interest period, which is
either of a 3- or 6-month duration, is net of £0.3m origination fees paid up
front and being amortised over 4 years.
The interest rate on the debt facility ranged between 5.00% and 6.68% in H1
2024 (FY 2023: between 3.70% and 6.60%).
13. RELATED PARTY TRANSACTIONS
There were no material related party transactions requiring disclosure for the
periods ended 30 June 2024 and 30 June 2023.
14. 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 2024 and 31
December 2023:
Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
30-Jun-24 £'000 £'000 £'000 £'000
Assets
Forward exchange contracts - 331 - 331
Total assets - 331 - 331
Liabilities
Forward exchange contracts - (286) - (286)
Total liabilities - (286) - (286)
Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
31-Dec-23 £'000 £'000 £'000 £'000
Assets
Forward exchange contracts - 1,264 - 1,264
Total assets - 1,264 - 1,264
Liabilities
Forward exchange contracts - (28) - (28)
Total liabilities - (28) - (28)
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 (2023: 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-24 31-Dec-23
(Unaudited) (Unaudited)
£'000 £'000
Current 43,055 36,527
Total 43,055 36,527
The fair value of financial assets excluding cash and cash equivalents is as
follows:
30-Jun-24 31-Dec-23
(Unaudited) (Unaudited)
£'000 £'000
Non-current trade receivables 40 70
Trade receivables 36,315 33,002
Total 36,355 33,072
15. CAPITAL COMMITMENTS
Capital expenditure commitments of £4,993k (31 December 2023: £2,309k) and
£7,143k (31 December 2023 £nil) have been contracted for at the end of the
reporting period but not yet incurred, and are in respect of property, plant
and equipment and right-of-use assets respectively.
16. EVENTS OCCURING AFTER THE REPORTING PERIOD
There are no material events occurring after the reporting period.
17. STANDARDS ISSUED BUT NOT EFFECTIVE
i) New standards and amendments - applicable 1 January 2024
The following standards and interpretations apply for the first time to
financial reporting periods commencing on or after 1 January 2024:
Effective for accounting periods beginning on or after Expected Impact
Amendments to IFRS 16: Lease Liability in a Sale and Leaseback 1 January 2024 None
Amendments to IAS 1: Classification of Liabilities as Current or Non-current 1 January 2024 See below
Supplier Finance Arrangements - Amendments to IAS 7 and IFRS 7 1 January 2024 None
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The Group is currently assessing the impact the amendments will have on
current practice and whether existing loan agreements may require
reclassification.
ii) Forthcoming requirements
As at 30 June 2024, the Group has not adopted early any standard,
interpretation or amendment that has been issued but is not yet effective.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR UPUBURUPCGMARecent news on Zotefoams
See all newsREG - Zotefoams PLC - Notification Of Transactions Of Directors/PDMRs
AnnouncementREG - Zotefoams PLC - Holding(s) in Company
AnnouncementREG - Zotefoams PLC - Notification Of Transactions Of Directors/PDMRs
AnnouncementREG - Zotefoams PLC - Interim Results
AnnouncementREG - Zotefoams PLC - Notification Of Transactions Of Directors/PDMRs
Announcement