REG - Zotefoams PLC - Interim Results
09/08/2022 07:00
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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 £59.0m, 23% above the prior year comparative (HY 2021:
£48.2m)
- High-Performance Products (HPP) sales up 21% to £23.7m (HY 2021: £19.6m)
- Polyolefin foams sales up 26% to £34.3m (HY 2021: £27.3m)
• On a constant currency basis, Group revenue was 21% ahead of the prior year
comparative at £57.9m
• Effective pricing has supported gross margins, despite significant cost
inflation
• Profit before tax (PBT) increased 42% to £5.7m (HY 2021: £4.0m)
- FX tailwinds benefitted PBT by £1.0m
• 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
•
On a constant currency basis, Group revenue was 21% ahead of the prior year
comparative at £57.9m
•
Effective pricing has supported gross margins, despite significant cost
inflation
•
Profit before tax (PBT) increased 42% to £5.7m (HY 2021: £4.0m)
- FX tailwinds benefitted PBT by £1.0m
•
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(®) recyclable packaging technology
•
Aviation sales increasing as market recovers and continued good demand in
footwear products
•
Key patent granted in the USA for ReZorce(®) recyclable packaging technology
Financial summary
Six months ended 30 June 2022 Six months ended 30 June 2021 Change
Group revenue (£m) 59.0 48.2 23%
Gross margin (%) 28.9 28.9 -
Operating profit (£m)* 6.6 4.7 41%
Profit before tax (£m)* 5.7 4.0 42%
Basic EPS (p)* 9.42 6.52 44%
Cash generated from operations (£m) 5.2 5.6 (8%)
Interim dividend (p) 2.18 2.10 4%
Leverage ratio (multiple) 2.0 1.9 -
Net debt (£m) 38.0 35.6 (7%)
*Unadjusted for £0.12m 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(®) 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 (MuCell
Extrusion) 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 23% to £59.0m (HY 2021: £48.2m), 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 £57.9m.
Gross profit increased 23% to £17.1m (HY 2021: £13.9m), 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 £6.6m (HY 2021: £4.7m).
Profit before tax increased 42% to £5.7m (HY 2021: £4.0m) and basic earnings
per share increased 44% to 9.42p (HY 2021: 6.52p). Operating profit benefitted
from a £1.0m favourable currency movement.
Cash generated from operations was £5.2m (HY 2021: £5.6m), 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 £3.7m to £38.0m (31 December 2021: £34.3m) 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 £34.3m (HY 2021: £27.3m) and sales volumes increasing 4%.
On a constant currency basis, sales were £34.4m. 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 £1.7m (HY 2021: £1.3m), 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 £1.9m. 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 £23.7m (HY 2021: £19.6m). On a constant currency basis,
sales were £22.6m, 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 £19.5m (HY 2021: £16.5m). ZOTEK® F technical foams, which are mainly
used in aviation, grew by 69% to £1.9m (HY 2021: £1.1m). This remains
significantly below the pre-pandemic years (HY 2020: £3.5m and HY 2019:
£4.2m) but is an encouraging trend and we expect this momentum to continue.
T-FIT(®) 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 £6.5m (HY 2021: £3.9m), yielding a
segment profit margin of 27% (HY 2021: 20%). On a constant currency basis,
segment profit was £5.3m, 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 microcellular foam technology and sells related machinery,
accounted for 2% (HY 2021: 3%) of Group revenue in the period with sales of
£1.1m (HY 2021: £1.3m).
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(®) 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 £0.6m in operating costs (HY 2021: £0.3m) to
continue the development of ReZorce, while a further £0.9m of capex was
incurred, split £0.7m (HY 2021: £0.2m,) intangible development costs and
£0.2m (HY 2021: £0.5m) tangible assets. Since the inception of this
initiative, the Group has capitalised a total of £3.3m (HY 2021: £1.2m).
MEL reported a segment loss after amortisation costs of £0.6m (HY 2021: loss
£0.1m), 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 £6.3m (31 December 2021: £5.1m),
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 to 30 Jun 22 6 months to 30 Jun 21 12 months to 31 Dec 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 £1.1m above those adjusted on a
constant currency basis (HY 2021: £2.6m below). The net profit effect of this
on the Group, prior to any hedging activity, was a gain of approximately
£1.0m (HY 2021 loss: £1.8m). Offsetting this, and included in administrative
expenses, was a loss of £0.9m (HY 2021 gain: £1.0m) from transactional
hedging via forward exchange contracts. We also recorded a translation gain,
mostly related to the translation of USD-denominated footwear receivables, of
£0.9m (HY 2021 loss: £0.4m). The combined favourable impact of movements in
foreign currency on profitability in the period was £1.0m (2021: adverse
effect £1.2m).
Gross profit
Gross profit increased 23% in the period to £17.1m (HY 2021: £13.9m),
benefitting from improved pricing, the operational gearing effect of higher
sales volumes and £1.1m 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(®) 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
£3.7m (HY 2021: £3.6m), 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 £6.8m (HY
2021: £5.7m). Stripping out FX hedging movements, costs increased 9% to
£6.9m (HY 2021: £6.3m. See currency review for further details of FX-related
variances.
Finance Costs
Finance costs increased to £0.9m (HY 2021: £0.6m) and include £0.1m (HY
2021: £0.1m) of interest on the Company's Defined Benefit Scheme pension
obligation. The increase relates to £0.3m 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 £1.1m (HY 2021:
£0.8m). 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 £5.2m (HY 2021: £5.6m). Included in this
was a net increase in working capital in the period of £5.8m (HY 2021: net
increase of £3.0m). Accounts receivable increased £9.6m in the period (HY
2021: increased £4.1m), 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 £1.0m in the period (HY 2021: increased £3.9m) and
accounts payable increased £4.7m (HY 2021: increased £5.0m), reflecting
significantly higher levels of activity and materials pricing compared with
the comparative period.
Capital expenditure in the period was £3.4m (HY 2021: £3.4m), of which
£0.8m (HY 2021: £0.3m) related to intangibles arising from the
capitalisation of ReZorce development costs. A final dividend of £2.1m (HY
2021: £2.1m) was paid during the period.
Net debt and covenants
Net debt (cash less bank borrowings and lease liabilities) increased by £3.7m
from the start of the period to £38.0m (31 December 2021: £34.3m).
At 30 June 2022, the Group's gross finance facilities were £50.0m, comprising
a multi-currency term loan of £50.0m. At 31 December 2021, the Group's gross
finance facilities were £47.3m, comprising a multi-currency term loan of
£20m, a multi-currency revolving credit facility of £25.0m and a remaining
balance of £2.3m of a further £7.5m 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 £12.3m (31 December 2021:
£13.4m).
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)
£m 12 months to 30 June 2022 12 months £m At 30 June At 31 Dec
to 31 Dec 2022 2021
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)
Depreciation and amortisation 7.7 7.6 Fin leases pre 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
£m 12 months to 30 June 2022 12 months £m 12 months 12 months
to 31 Dec to 30 June to 31 Dec
2021 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
throughout 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 £7.7m (previous triennial valuation:
£4.2m). As a result, the Company agreed with the Trustees to make
contributions to the DB Scheme of £643,200 per annum, beginning 1 July 2021,
to meet the shortfall by 31 October 2026 (previously 31 October 2026), up
from £492,000 per annum previously. In addition, the Company pays the
ongoing DB Scheme expenses of £216,000 per annum (previously £180,000 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 £4.7m. Over the period to 30 June
2022, the Scheme's invested assets have reduced by around £7.6m while the
liabilities have reduced by around £9.8m 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 £2.2m (i.e. from
£4.7m as at 31 December 2021 to around £2.5m 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 £50m multi-currency
revolving credit facility with a £25m 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(®), 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 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 MONTHS ENDED
30 JUNE 2022
Six months ended Year Ended
30-Jun-22 30-Jun-21 31-Dec-21
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'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
MONTHS ENDED 30 JUNE 2022
Six months ended Year ended
30-Jun-22 30-Jun-21 31-Dec-21
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'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 3,279 (623) (96)
subsidiaries
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 £'000 £'000 £'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 MONTHS
ENDED 30 JUNE 2022
Six months ended Year ended
30-Jun-22 30-Jun-21 31-Dec-21
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'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 £455k (June 2021: £438k,
December 2021: £821k) of which no interest was capitalised (June 2021: £33k,
December 2021: £32k) 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 £658k (June 2021: £121k, December 2021:
£376k) 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 2022
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 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 - - - - - (3,141) - (3,141)
income
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 - - - - - 450 - 450
net of recycling
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
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 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 - - - - - 570 - 570
income
Hedging gains reclassified to profit or loss - - - - - (995) - (995)
Tax relating to effective portion of changes in fair value of cash flow hedges - - - - - (155) - (155)
net of recycling
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
MONTHS ENDED 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(®) 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-22 30-Jun-21 30-Jun-22 30-Jun-21 30-Jun-22 30-Jun-21 30-Jun-22 30-Jun-21
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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 ended (Unaudited) 30-Jun-22 31-Dec-21 30-Jun-22 31-Dec-21 30-Jun-22 31-Dec-21 30-Jun-22 31-Dec-21
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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 Kingdom Europe North America Rest of World Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
£`000 £`000 £`000 £`000 £`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
£19,540k (2021: £16,496k) 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)
£'000 £'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)
£'000 £'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. DIVIDENDS
A dividend of £2,131k (2021: £2,058k) 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 £1,060k (2021: £1,018k), 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 £4,570k
(2021: £3,162k) 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 and buildings Plant and equipment Fixtures and fittings Under construction Total
£'000 £'000 £'000 £'000 £'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)
£'000 £'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 £50m
multi-currency revolving credit facility, with a £25m 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 £45.4m (31 December 2021: £41.6m) of
its multi-currency revolving credit facility of £50m. The total amount of
£45.4m, repayable on the last day of each loan interest period, which is
either of a 3 or 6 month duration, includes £0.7m 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 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
30-Jun-22 £'000 £'000 £'000 £'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 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
30-Jun-21 £'000 £'000 £'000 £'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)
£'000 £'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)
£'000 £'000
Non-current trade receivables 35
59
Trade Receivables 34,253 26,112
Total 34,312 26,147
14. CAPITAL COMMITMENTS
Capital expenditure commitments of £1,403k (2021: £1,540k) 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 after Impact
Business Combinations - Reference to Conceptual Framework - Amendments to IFRS 1 January 2022 None
3
Property, Plant and Equipment - Amendments to IAS16 1 January 2022 None
Provisions, Contingent Liabilities and Contingent Assets - Amendments to IAS 1 January 2022 None
37
Annual Improvements to IFRS Standards 2018-2020 Cycle 1 January 2022 None
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 after Expected Impact
Income Taxes - Deferred Tax related to asset and liabilities arising from a TBC None
single transaction - Amendments to IAS 12
Accounting Policies, Changes in Accounting Estimates and Errors - Amendments TBC None
to IAS 8
Classification of Liabilities as Current or Non-current - Amendments to IAS 1 TBC None
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