REG - Zotefoams PLC - Interim Results
08/08/2023 07:00
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RNS Number : 5641I Zotefoams PLC 08 August 2023
Zotefoams plc
Interim Report for the Six Months Ended 30 June 2023
Strong sales growth and recovery in gross margin drives record H1 profit
8 August 2023 - 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 2023.
Results highlights
• Group revenue of £64.6m, 9% higher year-on-year (HY 2022: £59.0m)
- High-Performance Products (HPP) sales up 11% to £26.4m (HY 2022: £23.7m)
- Polyolefin foams sales up 10% to £37.7m (HY 2022: £34.3m)
• Improved gross margin, up to 32.8% from 28.9%
• Profit before tax (PBT) increased 30% to £7.4m (HY 2022: £5.7m)
• Excluding MuCell Extrusion, PBT increased 49% to £9.4m (HY 2022: £6.3m)
• Basic earnings per share increased 22% to 11.53p (HY 2022: 9.42p)
• Continued strong cash generation of £5.8m (HY 2022: £5.2m), with leverage
multiple at 1.1
• Interim dividend increased by 4.6% to 2.28p per share (2022: 2.18p per share),
reflecting continuing confidence in the Group's prospects
•
Improved gross margin, up to 32.8% from 28.9%
•
Profit before tax (PBT) increased 30% to £7.4m (HY 2022: £5.7m)
•
Excluding MuCell Extrusion, PBT increased 49% to £9.4m (HY 2022: £6.3m)
•
Basic earnings per share increased 22% to 11.53p (HY 2022: 9.42p)
•
Continued strong cash generation of £5.8m (HY 2022: £5.2m), with leverage
multiple at 1.1
•
Interim dividend increased by 4.6% to 2.28p per share (2022: 2.18p per share),
reflecting continuing confidence in the Group's prospects
Strategic highlights
• Margin recovery delivered with realignment of selling prices to input costs
after a volatile post-COVID period
• Well positioned to benefit from aviation market recovery
• Exclusivity agreement with Nike extended to 31 December 2029
• Joint development agreement with a world-leading packager of beverages signed
in July 2023, following good technical and pre-commercial progress on
ReZorce(®) recyclable barrier packaging. Group profit delivered after
absorbing £1.5m (HY 2022: £0.6m) of ReZorce-specific costs
Financial summary
Six months ended 30 June 2023 Six months ended 30 June 2022 Change
Group revenue (£m) 64.6 59.0 9%
Gross margin (%) 32.8 28.9 -
Operating profit (£m)* 8.5 6.6 29%
Profit before tax (£m)* 7.4 5.7 30%
Basic EPS (p)* 11.53 9.42 22%
Cash generated from operations (£m) 5.8 5.2 12%
Interim dividend (p) 2.28 2.18 4.6%
Leverage ratio (multiple) 1.1 2.0 -
Net debt (£m) 28.3 38.0 26%
*Unadjusted for £131k (HY 2022: £121k) of amortisation on acquired
intangibles
Commenting on the results and the outlook, David Stirling, Group CEO, said:
"The business has delivered strong revenue growth along with margin recovery,
predominantly in our Polyolefin Foams business where cost inflation had been
significant. With the benefit of currency tailwinds, profit before tax in the
period has increased 30% to a record £7.4m (HY 2022: £5.7m). Particularly
pleasing is the progress being made in the foam manufacturing side of our
business (comprising our Polyolefin Foams and HPP segments), where operating
profit increased 46% to £10.5m (HY 2022: £7.1m). We are also delighted to
extend the exclusive supply agreement with Nike to the end of 2029.
"We have made demonstrable progress with ReZorce recyclable barrier packaging
technology, including entering into a joint development agreement with a
global leader of beverage packaging, and our ongoing investment, combined with
the rest of the MEL business segment, generated a £2.0m (2022: £0.6m)
operating loss. Investment in ReZorce recyclable barrier packaging technology
in the second half is planned to be slightly above that of the first six
months.
"The short-term outlook for the remainder of the year is somewhat tempered by
market expectations of squeezed consumer spending and industrial deflation,
resulting in inventory reductions in some of our markets. Other markets, such
as aviation, are not expected to be impacted by this trend, with underlying
structural growth drivers remaining robust. We expect energy and polymer input
costs to be more beneficial while the US dollar, at a current rate of around
$1.28, will provide a headwind to profitability for the remainder of the year,
after benefitting operating profit by £1.1m in H1 2022 despite being
partially hedged.
"Overall, the Board is pleased with the recent performance and current
positioning of our business. We remain confident that the Company can deliver
a full year performance in line with market expectations, underpinned by a
strong first half performance. We remain optimistic that we can continue our
positive momentum in the medium term."
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, 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 £5.6m, or 9%, to £64.6m (HY 2022:
£59.0m). On a constant currency basis, Group revenue increased £2.3m, or 4%,
to £61.3m.
Gross profit increased £4.1m, or 24%, to £21.2m (HY 2022: £17.1m) and gross
margin improved to 32.8% (HY 2022: 28.9%). Operating profit for the period
increased £1.9m, or 29%, to £8.5m (HY 2022: £6.6m). Profit before tax
increased £1.7m, or 30%, to £7.4m (HY 2022: £5.7m) and basic earnings per
share increased 2.11p, or 22%, to 11.53p (HY 2022: 9.42p). Operating profit
benefitted from £1.2m of currency movement.
Cash generated from operations was £5.8m (HY 2022: £5.2m). Closing net debt
increased in the first six months of the year by £0.5m to £28.3m (31
December 2022: £27.8m) and the leverage multiple (net borrowings to EBITDA,
see section "Net debt and covenants" for definition) at the end of the period
was 1.1 (31 December 2022: 1.2), a material reduction on the equivalent period
last year (HY 22: 2.0 on £38.0m net debt).
The Board remains confident in the cash generation of the business and an
interim dividend of 2.28p per share has been approved by the Board (HY 2022:
2.18p 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 that was recently extended to 2029, 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 2023, we delivered 9% revenue growth, with pricing
initiatives and product mix driving this increase, as well as foreign exchange
rates, which accounted for 5%. Sales volumes decreased 4%, mainly from the
European and Far East regions of our Polyolefin Foams business.
Demand in most markets remained robust during the period. Footwear was our
best performer, growing 14% compared with H1 2022, with volume and foreign
exchange rates being the two main components, and accounting for 34% of Group
sales (HY 2022: 33%). By geography, all major regions delivered sales growth,
led by price increases and benefitting from favourable foreign exchange rates.
Polyolefin Foams
Polyolefin foams represented 58% of Group revenue (HY 2022: 58%), with sales
increasing 10% to £37.7m (HY 2022: £34.3m) but sales volumes decreasing 5%.
On a constant currency basis, sales were £36.0m.
In Continental Europe (46% of segment sales) sales increased 10% while volumes
decreased 5% versus the comparative period, with automotive, construction and
certain product protection markets being more negatively impacted by the
current economic conditions. In the UK (16% of segment sales), sales increased
7% and in North America (32% of segment sales), sales increased 13%, with no
significant change in volume in these markets. In Asia, where volumes are more
dependent on a smaller number of specific high value-added programs, sales
were unchanged on lower volumes. In all markets we have experienced product
mix adjustments as customers switch to 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.
Segment profit increased 190% to £5.0m (HY 2022: £1.7m), yielding a segment
profit margin of 13% (HY 2022: 5%). On a constant currency basis, segment
profit was £4.3m. We believe that our market pricing was reflective of the
input costs in the period with, in some cases, part of the price being a
temporary surcharge reflective of high polymer and energy pricing. As these
input costs fall, we are realigning prices in some products and markets. In
the period, the average cost of low-density polyethylene (LDPE), which is our
main raw material, was relatively similar to the long-run average polymer
pricing after falling significantly in 2019 and 2020, rising from 2021 and
peaking in Q2 2022. In the current year, labour cost across all geographies is
likely to represent the largest inflationary component within our cost base.
Overall segment performance is also impacted by asset utilisation and
operating efficiency. In the short term, our focus is on operating efficiency,
particularly in our North American facility where we see the biggest
opportunity to reduce costs and to release capacity to meet medium-term
regional demand. In Europe, an increasing proportion of our Polyolefin Foams
business is being served from our facility in Poland as the UK facility
produces more foams for footwear and other HPP products.
High-Performance Products ("HPP")
HPP represented 41% of Group revenue in the period (HY 2022: 40%), with sales
increasing 11% to £26.4m (HY 2022: £23.7m). On a constant currency basis,
sales were £24.8m, representing 5% growth. Sales volumes in HPP were 7%
higher than the comparative period, with product mix weighted to slightly
lower-priced products. Prices of HPP-related polymers have been relatively
stable while other costs, such as labour and energy, despite experiencing
inflation, represent a relatively lower percentage of sales. There were no
major price adjustments in the period.
Sales of our largest application, footwear, continued to show growth in the
period, increasing 14% to £22.3m (HY 2022: £19.5m). Our exclusive agreement
with Nike was extended to 31 December 2029, reflecting the close and
successful collaboration on technical foams for high-performance footwear.
ZOTEK(®) F technical foams are designed to be lightweight, insulating and
non-flammable. Predominantly, sales are to the aviation market, but they are
increasing into the space sector and other markets where insulation and safety
are paramount. In all these markets, the underlying trends are positive, with
aviation build rates increasing and additional applications for our foams
being approved, which will help to drive strong sales growth. Given timing
effects, the first half performance did not see a material benefit from these
underlying trends, but we expect them to be strongly evident in the full-year
performance. In the period, sales fell by 9% to £1.7m (HY 2022: £1.9m).
T-FIT(®) advanced insulation, which is mainly used for cleanrooms in
pharmaceutical, biotech and semiconductor manufacturing, grew 9% in the
period, to £2.2m (HY 2022: £2.1m), with good growth in India offset
primarily by more challenging conditions in China, particularly in the
pharmaceutical manufacturing industry.
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 ambitions
over the longer term.
Segment profit in HPP increased by 11% to £7.2m (HY 2022: £6.5m), yielding a
profit margin of 27% (HY 2022: 27%). On a constant currency basis, segment
profit was £6.2m, mainly as a result of product mix and phasing, yielding a
profit margin of 25%. Most HPP sales are in USD, while costs are in a mixture
of GBP, USD and Euro, therefore the benefit of the stronger dollar was greater
on the HPP segment than in Polyolefin Foams. Raw materials and other
inflationary pressures were less marked in HPP than in the Polyolefin Foams
business, partly as a result of larger inventory holdings in HPP, with
correspondingly lower pricing adjustments in HPP foams and T-FIT insulation
products.
MuCell Extrusion LLC ("MEL")
MEL, which develops and licenses microcellular foam technology and sells
related machinery, accounted for 1% (HY 2022: 2%) of Group revenue in the
period with sales of £0.6m (HY 2022: £1.1m).
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(®) recyclable barrier packaging solutions. Moreover, as we have
previously communicated, we have invested additional resources to deliver this
opportunity. ReZorce is a mono-material, and hence fully recyclable, solution
for packaging consumer products. We have focused on an alternative to liquid
paperboard cartons, which are made using a combination of different materials
and therefore cannot be easily recycled and are not considered to be circular
(i.e. they do not use their own post-consumer recycled content in their
manufacture). ReZorce, therefore, offers a potential improvement in carbon
footprint and recyclability to a global industry. This is a high-risk
development with the potential for commensurately high rewards for success.
We are working on developing a complete "end-to-end" solution for recyclable
beverage cartons. This begins in our facility in Denmark with the manufacture
of ReZorce material using recycled content. This is followed by printing to
the required standard, then made into cartons, filled with liquid such as
juice in a sterile environment using existing packaging infrastructure and
finally, after consumption, getting recycled in common kerbside post-consumer
recycling streams. In all aspects, we have made significant progress in the
first six months of this year, culminating in the signing of a joint
development agreement with a world-leading packager of beverages in July, who
brings expertise in the field of consumer packaging and will accelerate our
ability to scale up trials and move towards commercialisation.
During the period, we invested £1.5m in operating costs (HY 2022: £0.6m) to
continue the development of ReZorce, while a further £1.0m of capex was
incurred, split £0.8m (HY 2022: £0.7m) in intangible development costs and
£0.2m (HY 2022: £0.2m) in tangible assets. Since the inception of this
initiative, the Group has capitalised a total of £5.7m (31 December 2022:
£4.7m).
MEL reported a segment loss after amortisation costs of £2.0m (HY 2022: loss
£0.6m) as growth investment was diverted to ReZorce. The carrying value of
MEL at 30 June 2023 includes intangible assets of £7.3m (31 December 2022:
£7.1m), which mostly comprises goodwill and technology that arose on the
acquisition of MEL in a previous accounting period (£3.4m) and capitalised
development costs relating to ReZorce (£3.2m). 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 the 2022 Zotefoams
Annual Report, setting out the Group's ESG management framework, goals and
performance to date. This will next be updated in the next Annual Report to be
published in April 2024.
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 now returned to direct engagement with all overseas operations, post
COVID-19. We currently employ 580 people globally (HY 2022: 572 people), 43%
(HY 2022: 42%) 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.
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 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 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 23 6 months to 30 Jun 22 12 months to 31 Dec 22
Euro to GBP - period average 1.141 1.189 1.173
Euro to GBP - period-end spot 1.164 1.163 1.129
USD to GBP - period average 1.233 1.300 1.238
USD to GBP - period-end spot 1.263 1.213 1.204
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 favourable impact on sales and
profitability. Reported net sales were £3.3m above those adjusted on a
constant currency basis (HY 2022: £1.1m above). The net profit effect of this
on the Group, prior to any hedging activity, was favourable by approximately
£1.5m (HY 2022 gain: £1.0m). Offsetting this, and included in administrative
expenses, was a loss of £0.2m (HY 2022 loss: £0.9m) from transactional
hedging via forward exchange contracts and a translation loss, mostly on
USD-denominated footwear receivables, of £0.2m (HY 2022 gain: £0.9m). The
combined favourable impact of movements in foreign currency on profitability
in the period was £1.1m (2022: favourable impact £1.0m).
Gross profit
Gross profit increased by £4.1m or 24% in the period to £21.2m (HY 2022:
£17.1m), benefitting from the price adjustments of 2022 and total raw
material costs similar to the prior period comparative. While energy prices
have stabilised, they were 20% higher than the prior year comparative and the
Group was also impacted by labour inflation and increased investments in core
capability in the USA and Poland plants. The Group also benefitted from £1.8m
of favourable currency impact, before hedging, which is disclosed separately
under administrative expenses. The net impact of these movements was a
recovery in gross profit margin to 32.8% (HY 2022: 28.9%).
Distribution and administrative costs
Included within distribution expenses in the Group's income statement are
sales, marketing, despatch and warehousing costs. These costs increased 7% to
£4.0m (HY 2022: £3.7m), with salary inflation and investments in our growing
US and Poland activities partly offset by offsite warehouse storage cost
reduction in the UK.
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 29% to £8.8m (HY
2022: £6.8m). Stripping out FX hedging movements, costs increased 22% to
£8.4m (HY 2022: £6.9m), reflecting the impact of salary inflation in all
regions and increases in Group technical costs, primarily investments in the
quality function and MuCell (ReZorce related). See currency review for further
details of FX-related variances.
Net finance costs
Net finance costs increased to £1.1m (HY 2022: £0.9m) and include £0.1m (HY
2022: £0.1m) of interest on the Company's Defined Benefit Scheme pension
obligation. The increase, which is £0.5m after accounting for a £0.3m
one-off amortisation of a previous lending facility in the prior period
comparative, relates to the increase in lending rates in the US dollar and
euro, the primary borrowings of the Group.
Taxation and earnings per share
Income tax expense for the period increased 59% to £1.8m (HY 2022: £1.1m).
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
2023 is 24.38% (estimated average annual tax rate for the year used at 30 June
2022: 19.88%), which reflects the increase in the UK corporation tax rate.
Basic earnings per share was 11.53p (HY 2022: 9.42p) an increase of 22%, while
diluted earnings per share was 11.28p (HY 2022: 9.21p), also an increase of
22%.
Cash flow
Cash generated from operations was £5.8m (HY 2022: £5.2m). Included in this
was a net increase in working capital in the period of £6.5m (HY 2022: net
increase of £5.8m). Accounts receivable increased £2.8m in the period (HY
2022: increased £9.6m), reflecting higher revenues and the timing of
collections on some accounts. Inventories increased £4.0m in the period (HY
2022: increased £1.0m), led by a targeted build in AZOTE, primarily
high-value raw materials that were low in supply in 2022, a build in Poland to
improve service levels and a sizeable receipt at period end of the high-value
PVDF foam. Accounts payable increased £0.3m (HY 2022: increased £4.7m).
Capital expenditure in the period was £2.6m (HY 2022: £3.4m), of which
£1.0m (HY 2022: £0.8m) related to intangibles arising from the
capitalisation of ReZorce development costs. A significant increase is
expected in H2 2023. A final dividend of £2.2m (HY 2022: £2.1m) 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. The
latter was achieved in 2022.
Net debt (cash less bank borrowings and lease liabilities) increased by £0.5m
from the start of the period to £28.3m at 30 June 2023 (31 December 2022:
£27.8m). 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 £22.8m at 30 June 2023 (31 December 2022:
£22.9m).
The Group remained comfortably within its banking covenants, which are tested
semi-annually, throughout the first half of the year. As at 30 June 2023, the
multiple of EBITDA to net finance charges was 13.2 (31 December 2022: 13.7; 30
June 2022: 14.1), against a covenant minimum of 4.0, and the multiple of net
borrowings to EBITDA (leverage) was 1.1 (31 December 2022: 1.2; 30 June 2022:
2.0), 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 2023 12 months £m At 30 June At 31 Dec
to 31 Dec 2023 2022
2022
Profit after tax 11.0 10.0 Net debt per IFRS 28.3 27.8
Adjusted for: IFRS 16 leases (1.6) (1.0)
Depreciation and amortisation 8.5 8.2
Net finance costs 2.0 1.7 Net debt per bank 26.7 26.8
Share of result from joint venture (0.0) (0.0)
Equity-settled share-based payments 1.2 0.8
Taxation 2.9 2.2
Roundings 0.0 0.1
EBITDA 25.6 23.0 Leverage per bank 1.1x 1.2x
EBITDA to net finance charges ratio
£m 12 months to 30 June 2023 12 months £m 12 months 12 months
to 31 Dec to 30 June to 31 Dec
2022 2023 2022
EBITDA, as above 25.6 23.0 Finance costs 2.1 1.8
Finance income (0.1) (0.1)
EBITDA to net finance charges 13.2x 13.7x Net finance charges 2.0 1.7
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 2022, the IAS19 deficit disclosed in
the Company accounts was calculated to be £3.3m. Over the period to 30 June
2023, the Scheme's invested assets have remained unchanged while the
liabilities have reduced by around £0.6m 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 £0.5m (i.e. from £3.3m as at
31 December 2022 to around £2.7m as at 30 June 2023).
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 2022 Annual Report on pages 1 to 77 and the section entitled
Risk management and principal risks on pages 39 to 50. This Interim Report
provides information on business and financial performance for the six months
to 30 June 2023.
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 2.28p per share (HY 2022: 2.18p per share) will be paid
on 6 October 2023 to shareholders on the Company's register at the close of
business on 8 September 2023.
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 39 to 50, of the 2022 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 and at a time when we had a reasonably
clear understanding of the inflationary pressures prevailing and the likely
central bank actions required, as well as the ongoing situation in Ukraine.
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 2022 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
The short-term outlook for the remainder of the year is somewhat tempered by
market expectations of squeezed consumer spending and industrial deflation,
resulting in inventory reductions in some of our markets. Other markets, such
as aviation, are not expected to be impacted by this trend, with underlying
structural growth drivers remaining robust. We expect energy and polymer input
costs to be more beneficial while the US dollar, at a current rate of around
$1.28, will provide a headwind to profitability for the remainder of the year,
after benefitting operating profit by £1.1m in H1 2022, despite being
partially hedged.
Overall, the Board is pleased with the recent performance and current
positioning of our business. We remain confident that the Company can deliver
a full year performance in line with market expectations, underpinned by a
strong first half performance. We remain optimistic that we can continue our
positive momentum in the medium term.
L Drummond D B Stirling
Chair Group CEO
8 August 2023 8 August 2023
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 2022 Annual
Report as well as on the Zotefoams plc website: www.zotefoams.com.
By order of the Board:
L Drummond D B Stirling
Chair Group CEO
8 August 2023 8 August 2023
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT FOR THE SIX MONTHS ENDED
30 JUNE 2023
Six months ended Year Ended
30-Jun-23 30-Jun-22 31-Dec-22
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'000
Revenue 6 64,631 59,045 127,369
Cost of sales (43,404) (41,975) (88,639)
Gross profit 21,227 17,070 38,730
Distribution costs (3,977) (3,706) (8,037)
Administrative expenses (8,774) (6,803) (16,762)
Operating profit 8,476 6,561 13,931
Finance costs (1,218) (912) (1,814)
Finance income 104 13 56
Share of profit from joint venture 32 42 50
Profit before income tax 7,394 5,704 12,223
Income tax expense 7 (1,803) (1,134) (2,217)
Profit for the period/year 5,591 4,570 10,006
Profit attributable to:
Equity holders of the Company 5,591 4,570 10,006
5,591 4,570 10,006
Earnings per share:
Basic (p) 9 11.53 9.42 20.61
Diluted (p) 9 11.28 9.21 20.20
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 2023
Six months ended Year ended
30-Jun-23 30-Jun-22 31-Dec-22
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Profit for the period/year 5,591 4,570 10,006
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains on defined benefit pension schemes 200 1,800 584
Tax relating to items that will not be reclassified (50) (450) (146)
Total items that will not be reclassified to profit or loss 150 1,350 438
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation (losses)/gains on translation of foreign (1,844) 3,279 3,681
operations
Change in fair value of hedging instruments 307 (3,141) (3,025)
Hedging gains reclassified to profit or loss 186 1,348 2,865
Tax relating to items that may be reclassified 595 450 185
Total items that may be reclassified subsequently to profit or loss (756) 1,936 3,706
Other comprehensive (expense)/income for the period/year, net of tax (606) 3,286 4,144
Total comprehensive income for the period/year 4,985 7,856 14,150
Profit attributable to:
Equity holders of the Company 4,985 7,856 14,150
Total comprehensive income for the period/year 4,985 7,856 14,150
The notes below form an integral part of these condensed consolidated interim
financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
30-Jun-23 30-Jun-22 31-Dec-22
(Unaudited) (Unaudited) (Audited)
Notes £'000 £'000 £'000
Non-current assets
Property, plant and equipment 10 90,525 94,627 94,295
Right-of-use assets 1,477 946 939
Intangible assets 8,022 7,190 7,774
Investments in joint venture 185 205 153
Trade and other receivables 13 110 59 122
Deferred tax assets 434 430 410
Total non-current assets 100,753 103,457 103,693
Current assets
Inventories 29,664 27,569 26,139
Trade and other receivables 13 32,009 34,253 29,447
Derivative financial instruments 13 1,431 1 486
Cash and cash equivalents 8,518 7,726 10,594
Total current assets 71,622 69,549 66,666
Total assets 172,375 173,006 170,359
Current liabilities
Trade and other payables (13,818) (14,151) (13,500)
Derivative financial instruments 13 (117) (2,799) (1,550)
Current tax liability (1,875) (583) (226)
Lease liabilities (607) (466) (509)
Interest-bearing loans and borrowings 11 (35,254) (44,743) (37,446)
Total current liabilities (51,671) (62,742) (53,231)
Non-current liabilities
Lease liabilities (941) (504) (454)
Deferred tax liabilities (4,092) (3,425) (3,846)
Post-employment benefits (2,714) (2,529) (3,290)
Total non-current liabilities (7,747) (6,458) (7,590)
Total liabilities (59,418) (69,200) (60,821)
Total net assets 112,957 103,806 109,538
Equity
Issued share capital 2,431 2,431 2,431
Share premium 44,178 44,178 44,178
Own shares held (3) (7) (5)
Capital redemption reserve 15 15 15
Translation reserve 4,065 5,507 5,909
Hedging reserve 803 (1,653) (285)
Retained earnings 61,468 53,335 57,295
Total equity 112,957 103,806 109,538
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 2023
Six months ended
30-Jun-23 30-Jun-22 31-Dec-22
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Cash flows from operating activities
Profit for the period/year 5,591 4,570 10,006
Adjustments for:
Depreciation and amortisation 4,145 3,905 8,245
Disposals of assets 12 - 283
Finance costs 1,114 904 1,758
Share of profit from joint venture (32) (42) (50)
Net exchange differences (548) 658 871
Equity-settled share-based payments 677 335 809
Taxation 1,803 1,134 2,217
Operating profit before changes in working capital and provisions 12,762 11,464 24,139
Increase in trade and other receivables (2,758) (9,618) (4,818)
(Increase)/decrease in inventories (4,041) (967) 401
Increase in trade and other payables 292 4,742 4,119
Employee defined benefit contributions (430) (430) (859)
Cash generated from operations 5,825 5,191 22,982
Interest paid (1,016) (455) (1,255)
Income taxes (paid)/received (914) 245 (659)
Net cash flows generated from operating activities 3,895 4,981 21,068
Cash flows from investing activities
Interest received 104 9 56
Purchases of intangibles (959) (794) (1,724)
Purchases of property, plant and equipment (1,622) (2,629) (5,368)
Net cash used in investing activities (2,477) (3,414) (7,036)
Cash flows from financing activities
Repayment of borrowings (802) (42,729) (50,883)
Proceeds from borrowings - 43,092 43,044
Lease payments (352) (272) (499)
Dividends paid (2,243) (2,131) (3,188)
Net cash used in financing activities (3,397) (2,040) (11,526)
Net (decrease)/increase in cash and cash equivalents (1,979) (473) 2,506
Cash and cash equivalents at start of period/year 10,594 8,055 8,055
Exchange (losses)/gains (97) 144 33
Cash and cash equivalents at end of period/year 8,518 7,726 10,594
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 £1,016k (June 2022: £455k,
December 2022: £1,255k) of which no interest was capitalised (June 2022:
£nil, December 2022: £nil) on qualifying assets under IAS 23 'Capitalisation
of Borrowing Costs'.
The net exchange differences of £548k (June 2022: £658k, December 2022:
£871k) 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 2023
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 foreign operations - - - - (1,844) - - (1,844)
Change in fair value of hedging instruments recognised in other comprehensive - - - - - 307 - 307
income
Hedging gains reclassified to profit or loss - - - - - 186 - 186
Tax relating to effective portion of changes in fair value of cash flow hedges - - - - - 595 - 595
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
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 foreign operations - - - - 3,279 - - 3,279
Change in fair value of hedging instruments recognised in other comprehensive - - - - - (3,141) - (3,141)
income
Hedging gains 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
During the six months period ended 30 June 2023, 48,995 shares vested (June
2022: 58,737) and were issued from the Zotefoams Employee Benefit Trust
('EBT') following the exercise of these options.
During the six months period ended 30 June 2023, 382,464 Long Term Incentive
Plan awards (June 2022: 503,701), 52,447 Deferred Bonus Share Plan awards
(June 2022: 12,193) and 8,121 share options (June 2022: 31,489) 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 2023
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 2023 were authorised for issue in accordance with a resolution of the
directors on 7 August 2023.
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 2022 were approved by
the Board of Directors on 4 April 2023 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 2023 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 2022, 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
2.1. 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 2022, except for the adoption of new standards
effective as of 1 January 2023 as disclosed in Note 16. The Group has not
early adopted any standard, interpretation or amendment that has been issued
but is not yet effective. Several amendments apply for the first time in 2023,
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.
2.2. 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 2022 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
segment 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. 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-23 30-Jun-22 30-Jun-23 30-Jun-22 30-Jun-23 30-Jun-22 30-Jun-23 30-Jun-22
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Group revenue 37,657 34,286 26,380 23,706 594 1,053 64,631 59,045
Segment profit/(loss) pre-amortisation of acquired intangibles 4,985 1,720 7,196 6,458 (1,845) (458) 10,336 7,720
Amortisation of acquired intangible assets - - - - (131) (121) (131) (121)
Segment profit/(loss) 4,985 1,720 7,196 6,458 (1,976) (579) 10,205 7,599
Foreign exchange (losses)/gains - - - - - - (360) 59
Unallocated central costs - - - - - - (1,369) (1,097)
Operating profit 8,476 6,561
Financing costs - - - - - - (1,114) (899)
Share of profit from joint venture 32 42 - - - - 32 42
Profit before taxation 7,394 5,704
Taxation - - - - - - (1,803) (1,134)
Profit for the period - - - - - - 5,591 4,570
Depreciation and Amortisation:
Depreciation 2,647 2,582 503 482 257 147 3,407 3,211
Depreciation of right-of-use assets 231 155 41 34 104 70 376 259
Amortisation 145 221 54 69 163 145 362 435
Capital expenditure:
Property, plant and equipment (PPE) 1,334 1,917 334 382 205 183 1,873 2,482
Intangible assets 41 50 17 17 902 727 960 794
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-23 31-Dec-22 30-Jun-23 31-Dec-22 30-Jun-23 31-Dec-22 30-Jun-23 31-Dec-22
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Segment Assets 117,352 116,426 41,416 40,358 13,173 13,165 171,941 169,949
Unallocated Assets - - - - - - 434 410
Total Assets 172,375 170,359
Segment liabilities (37,863) (39,814) (14,406) (15,508) (1,181) (1,427) (53,450) (56,749)
Unallocated liabilities - - - - - - (5,968) (4,072)
Total liabilities (59,418) (60,821)
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 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
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
Major customers
Revenues from one customer of the Group located in "Rest of World" contributed
£22,271k (HY 2022: £19,540k) 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-23 30-Jun-22
(Unaudited) (Unaudited)
£'000 £'000
Sale of foam 64,037 57,560
Sale of equipment 433 568
Licence and royalty income 161 917
Group Revenue 64,631 59,045
7. INCOME TAX EXPENSE
Six months ended
30-Jun-23 30-Jun-22
(Unaudited) (Unaudited)
£'000 £'000
UK corporation tax 2,076 774
Overseas tax 149 56
Total current tax 2,225 830
Deferred tax (422) 304
Income tax expense 1,803 1,134
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 2023 is
24.38% (the estimated average annual tax rate for the period ended 30 June
2022 was 19.88%), which reflects the increase in the UK corporation tax rate.
8. DIVIDENDS
A dividend of £2,243k (2022: £2,131k) that relates to the period to 31
December 2022 was paid in June 2023.
An interim dividend of 2.28 pence per share was approved by the Board of
Directors on 7 August 2023 (2022: 2.18 pence per share). It is payable on 6
October 2023 to shareholders who are on the register at 8 September 2023. This
interim dividend, amounting to £1,109k (2022: £1,060k), 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
2023.
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 £5,591k (HY
2022: £4,570k) 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 2023
was 58,135 (30 June 2022: 138,151). 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-23 30-Jun-22
(Unaudited) (Unaudited)
Weighted average number of ordinary shares in issue(1) 48,472,869 48,490,547
Deemed issued for no consideration 1,082,961 1,129,822
Diluted number of ordinary shares issued 49,555,830 49,620,369
(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 2023 47,398 118,591 3,562 3,048 172,599
Additions - 48 - 1,825 1,873
Disposals - (987) (1) - (988)
Transfers 1,613 (130) 113 (1,596) -
Effect of movement in foreign exchange (888) (2,308) (68) (31) (3,295)
At 30 June 2023 48,123 115,214 3,606 3,246 170,189
Accumulated depreciation
At 1 January 2023 15,653 59,919 2,732 - 78,304
Depreciation charge 702 2,567 138 - 3,407
Disposals - (976) - - (976)
Transfers 301 (267) (34) - -
Effect of movement in foreign exchange (297) (718) (56) - (1,071)
At 30 June 2023 16,359 60,525 2,780 - 79,664
Net book value
At 31 December 2022 31,745 58,672 830 3,048 94,295
At 30 June 2023 31,764 54,689 826 3,246 90,525
11. INTEREST-BEARING LOANS AND BORROWINGS
30-Jun-23 31-Dec-22
(Unaudited) (Audited)
£'000 £'000
Current bank borrowings 35,254 37,446
Total 35,254 37,446
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 2023, the Group has utilised £35.3m (31 December 2022: £37.4m) of
its multi-currency revolving credit facility of £50m. The total amount of
£35.3m, repayable on the last day of each loan interest period, which is
either of a 3 or 6 month duration, is net of £0.4m origination fees paid up
front and being amortised over 4 years.
The interest rate on the debt facility ranged between 3.70% and 6.38% in H1
(FY 2022: between 1.60% and 6.00%).
12. RELATED PARTY TRANSACTIONS
There were no material related party transactions requiring disclosure for the
periods ended 30 June 2023 and 30 June 2022.
13. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Fair value estimation
To provide an indication of 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 below the table.
The following table presents the Group's financial assets and financial
liabilities measured and recognised at fair value at 30 June 2023 and 31
December 2022:
Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
30-Jun-23 £'000 £'000 £'000 £'000
Assets
Forward exchange contracts - 1,431 - 1,431
Total assets - 1,431 - 1,431
Liabilities
Forward exchange contracts - (117) - (117)
Total liabilities - (117) - (117)
Level 1 Level 2 Level 3 Total
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
31-Dec-22 £'000 £'000 £'000 £'000
Assets
Forward exchange contracts - 486 - 486
Total assets - 486 - 486
Liabilities
Forward exchange contracts - (1,550) - (1,550)
Total liabilities - (1,550) - (1,550)
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 (2022: 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-23 31-Dec-22
(Unaudited) (Unaudited)
£'000 £'000
Current 35,254 37,446
Total 35,254 37,446
The fair value of financial assets excluding cash and cash equivalents is as
follows:
30-Jun-23 31-Dec-22
(Unaudited) (Unaudited)
£'000 £'000
Non-current trade receivables 110 122
Trade receivables 32,009 29,447
Total 32,119 29,569
14. CAPITAL COMMITMENTS
Capital expenditure commitments of £1,875k (31 December 2022: £1,470k) 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 2023
The following standards and interpretations apply for the first time to
financial reporting periods commencing on or after 1 January 2023:
Effective for accounting periods beginning on or after Expected Impact
IFRS 17 Insurance Contracts 1 January 2023 None
Amendments to IAS 1: Classification of Liabilities as Current or Non-current 1 January 2023 See below
Definition of Accounting Estimates - Amendments to IAS 8 1 January 2023 See below
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice 1 January 2023 None
Statement 2
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The amendments had no impact on the Group's interim condensed consolidated
financial statements, but are expected to affect the accounting policy
disclosures in the Group's annual consolidated financial statements.
Definition of Accounting Estimates - Amendments to IAS 8
The amendments had no impact on the Group's interim condensed consolidated
financial statements, but are expected to affect the accounting policy
disclosures in the Group's annual consolidated financial statements.
ii) Forthcoming requirements
As at 30 June 2023, The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
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