Interim Results

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

 

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

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

to 31 Dec

2022

£m

At 30 June

2023

At 31 Dec

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

to 31 Dec

2022

£m

12 months

to 30 June

2023

12 months

to 31 Dec

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 operations

(1,844)

3,279

3,681

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 income

 -  

 -  

 -  

 -  

 -  

307

 -  

307

Hedging gains reclassified to profit or loss

 -  

 -  

 -  

 -  

 -  

186

 -  

186

Tax relating to effective portion of changes in fair value of cash flow hedges net of recycling

 -  

 -  

 -  

 -  

 -  

595

 -  

595

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 income

-

-

-

-

-

(3,141)

-

(3,141)

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 net of recycling

-

-

-

-

-

450

-

450

Actuarial gain on Defined Benefit Pension Scheme

        -  

            -  

         -  

               -  

               -  

            -  

1,800

1,800

Tax relating to actuarial gain on Defined Benefit Pension Scheme

         -  

            -  

        -  

               -  

               -  

           -  

(450)

(450)

Profit for the period

         -  

            -  

        -  

               -  

               -  

            -  

4,570

4,570

Total comprehensive income for the period

         -  

           -  

         -  

               -  

3,279

(1,343)

5,920

7,856

Transactions with owners of the Parent:









Options exercised

         -  

            -  

3

               -  

               -  

            -  

(3)

     -  

Equity-settled share-based payments net of tax

         -  

           -  

         -  

               -  

               -  

            -  

306

306

Dividends paid

-

-

-

-

-

-

(2,131)

(2,131)

Total transactions with owners of the Parent

      -

            -  

3

                -  

                -  

            -  

(1,828)

(1,825)

Balance as at 30 June 2022 (Unaudited)

2,431

44,178

(7)

15

5,507

(1,653)

53,335

103,806

 

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 issue1

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 Statement 2

1 January 2023

None

 

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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