Interim Results
Zotefoams PLC
08 August 2006
Zotefoams plc
Interim Results for the Six Months Ended 30 June 2006
8 August 2006 -- Zotefoams plc, the world's leading manufacturer of cross-linked
polyolefin block foam, today announces its interim results for the six months
ended 30 June 2006.
Summary
• Revenue of £15.88 million (2005: £13.69 million), up 16%
• Sales growth in all major markets
• Direct sales force expanded following the termination of commercial
relationships with the Sekisui Group
• Development completed of a 'world-first' nylon foam
• Profit before tax excluding exceptional items of £1.52 million (2005:
£0.95 million), up 60%*
• Gross margin of 26.8% (2005: 22.4%)
• Net debt of £2.55 million as at 30 June 2006 (2005: £1.83 million),
with accelerated capital refurbishment and upgrade programme
• Gearing at 30 June 2006 of 10% (2005: 8%)
• EPS excluding exceptional items were 2.9p (2005: 2.5p), up 16%
• Interim dividend maintained at 1.5p per share (2005: 1.5p)
*Profit before tax of £0.4 million (2005: £0.7 million) includes an exceptional
item of £1.09 million for costs incurred in terminating commercial relationships
with the Sekisui Group.
Bill Fairservice, Chairman of Zotefoams, commented:
'The year has started well for Zotefoams, with strong revenue and profit growth
achieved in the first half. Rising energy and raw materials prices have been
recovered through selling price increases. We continue to make good progress
with our polyolefin foams and the development of our high performance foams,
although the timing of revenues from these new products can be difficult to
predict. We anticipate further growth in the second half of the year albeit at
lower rates due to the seasonality of our business, and believe the
opportunities open to us provide encouraging prospects for the future.'
Enquiries:
Zotefoams plc Tel Today: 020 7831 3113
David Stirling, Managing Director Thereafter: 020 8664 1600
Clifford Hurst, Finance Director
Financial Dynamics Tel: 020 7831 3113
Sarah MacLeod
About us
Zotefoams plc is the world's leading manufacturer of cross-linked polyolefin
block foams. Its products are used in a wide range of markets, including sports
and leisure, packaging, transport, healthcare, toys, building, marine and the
military.
Through a unique production process, Zotefoams produces foams which have
controllable properties and are of a strength, consistency, quality and purity
superior to foams produced by other methods.
Zotefoams' strategy is to create sustained profit growth by expanding its sales
internationally and by broadening its potential market with new unique products.
Chairman's statement
Bill Fairservice
Results
I am pleased to announce a good set of results for the business. Revenue for the
six months ended 30 June 2006 was £15.88 million (2005: £13.69 million), an
increase of 16% on the previous year. Profit before tax was £0.43 million (2005:
£0.75 million). However, excluding exceptional items, profit before tax was
£1.52 million (2005: £0.95 million) a 60% increase over the first half of 2005.
Zotefoams continues to operate in an environment of increasing energy and raw
materials prices and our selling prices to customers have increased to recover
these costs. Gross margins increased to 26.8% (2005: 22.4%) with increased sales
volumes improving asset utilisation and reduced commission payments. Basic
earnings per share excluding exceptional items were 2.9p (2005: 2.5p) an
increase of 16% after an abnormally low tax charge in 2005 primarily due to the
partial recognition of the benefit of US tax losses in that year. Including
exceptional items basic earnings per share were 0.8p (2005: 2.0p).
Revenue
Overall sales growth of 16% was achieved with growth in all major markets.
Revenue from polyolefin foams increased 15% overall with a 3% increase in UK,
21% increase in Continental Europe and 23% increase in North America. Revenue
from polyolefin foams in the other regions declined slightly and sales of ZOTEK
(R) fluoropolymer high-performance foams increased 63% albeit both from
relatively low base levels. In all markets our approach of working on end-user
market development as well as support of our direct customers in specific market
segments has proved successful and we plan to continue to invest our marketing
resources in this manner.
Exceptional items
On 21 March 2006 we announced the termination of the Group's commercial
relationships with the Sekisui Chemical Company Ltd and subsidiaries (the '
Sekisui Group') which sold Zotefoams' polyolefin products as an agent in
Continental Europe and North America and as a distributor in Asia. The
termination of this relationship marks a significant change in Zotefoams'
approach to our customers in Europe and, on a smaller scale, in Asia. Our
intention is to employ a direct sales organisation across all product lines
worldwide. We expect the termination cost of £1.09 million, which is shown as an
exceptional charge, and the ongoing costs of establishing and operating our
sales team will be more than offset by the end of 2007 through a reduction in
commissions payable to the Sekisui Group.
Polyolefin foams
Following the termination of the alliance with the Sekisui Group we have
increased resource in both our customer service and sales departments to offer
improved levels of service and support to existing and potential new customers
and to exploit the opportunities offered by direct access to our major markets.
For the first time this includes a directly employed sales representative in
Asia to access the niche opportunities which we believe exist in this
fast-growing market.
High performance foams
Our product strategy exploits our unique manufacturing technology in the
development of high performance foams. In January 2006 we launched our second
ZOTEK(R) F fluoropolymer foam offering improved chemical resistance and higher
temperature performance and we are currently working on a number of exciting
projects with this material. In addition we have completed the development of a
'world first' polyamide (nylon) foam which offers excellent high-temperature
performance and is resistant to many chemicals, including hydrocarbons. I am
delighted that this product is now ready to launch and we are in the process of
introducing it across our customer base. With both these product lines we are
investing additional resource in technical and, increasingly, market development
to drive future growth.
Operations
We have experienced good volume growth since the second half of 2005 and, as
published in our Annual Report for 2005, we are accelerating our capital
refurbishment program for the high-pressure autoclaves at our Croydon site. In
July 2006 one major vessel was re-certified with its capability enhanced to
allow operation at higher temperatures. The upgrade of the next vessel in this
rolling program is scheduled to begin in the third quarter of this year.
Cash flow and balance sheet
Net debt increased from £1.83 million in June 2005 to £2.55 million at the end
of June 2006. This was primarily the result of the increased capital expenditure
referred to above, with expenditure of £1.54 million just under depreciation of
£1.62 million. However, the balance sheet remains strong with gearing of 10%.
Board changes
On 31 March Tony Eldrett, the Company's Operations and Projects Director,
retired from the Board. Tony is 61 years old and has been a Director of the
Company since 1992. He remains with Zotefoams retaining his current operational
responsibilities. On behalf of everyone involved with Zotefoams I would like to
thank Tony for his contribution to the Board over the years.
Dividend
The Directors have declared an interim dividend of 1.5p net per share (2005:
1.5p). The dividend will be paid on 28 September 2006 to shareholders who are on
the Company's register at the close of business on 1 September 2006.
Outlook
The year has started well for our business with strong revenue and profit growth
achieved in the first half. We anticipate further progress in the second half of
the year, although growth rates are likely to be lower than the first half year
due to the expected re-establishment of the normal seasonal patterns of our
business. With a significant portion of our revenues denominated in US dollars
and euros we are naturally exposed to fluctuations in exchange rates, although
currency hedging contracts in place for 2006 will mitigate the negative
transactional impact of the recent weakening of these currencies against
sterling. The timing of revenue from our high performance foams is difficult to
predict. However, we are working on a number of major opportunities which we
believe have a good chance of success. The continued growth in polyolefin foams
and the development of our high performance polymers business provide
encouraging prospects for the future.
Prices of LDPE, our major raw material, have been at historically high levels
for the first six months and we anticipate that these levels will be sustained
throughout 2006. Energy is also a major cost and, as part of our risk management
strategy, we have fixed price contracts in place through to November 2006 and at
a higher level from December 2006 to November 2007.
We are confident the business can deal with the continued pressure of rising
costs. In addition there are good prospects in many products and markets. We
therefore look forward to the future with optimism.
W H Fairservice
Chairman
7 August 2006
Consolidated income statement
for the six months ended 30 June 2006
Six months ended 30 June 2006
Pre- Post-
exceptional Exceptional exceptional
items items items
Note £000 £000 £000
______ ______ ______
Revenue 2 15,875 - 15,875
Cost of sales (11,616) - (11,616)
______ ______ ______
Gross profit 4,259 - 4,259
Distribution costs (1,031) - (1,031)
Administrative expenses (1,618) (1,092) (2,710)
______ ______ ______
Operating profit before finance costs 1,610 (1,092) 518
Financial income 441 - 441
Finance costs (528) - (528)
______ ______ ______
Profit before tax 1,523 (1,092) 431
Income tax expense 3 (458) 328 (130)
______ ______ ______
Profit for the period 1,065 (764) 301
______ ______ ______
Attributable to:
Equity holders of the parent 1,065 (764) 301
______ ______ ______
Earnings per share
Basic (p) 5 0.8
______
Diluted (p) 5 0.8
______
Consolidated income statement
for the six months ended 30 June 2006 (continued)
Six months ended 30 June 2005
Pre- Post-
exceptional Exceptional exceptional
items items items
Note £000 £000 £000
______ ______ ______
Revenue 2 13,691 - 13,691
Cost of sales (10,620) - (10,620)
______ ______ ______
Gross profit 3,071 - 3,071
Distribution costs (936) - (936)
Administrative expenses (1,077) (206) (1,283)
______ ______ ______
Operating profit before finance costs 1,058 (206) 852
Financial income 409 - 409
Finance costs (515) - (515)
______ ______ ______
Profit before tax 952 (206) 746
Income tax expense 3 (29) - (29)
______ ______ ______
Profit for the period 923 (206) 717
______ ______ ______
Attributable to:
Equity holders of the parent 923 (206) 717
______ ______ ______
Earnings per share
Basic (p) 5 2.0
______
Diluted (p) 5 2.0
______
Consolidated income statement
for the six months ended 30 June 2006 (continued)
Year ended 31 December 2005
Pre- Post-
exceptional Exceptional exceptional
items items items
£000 £000 £000
______ ______ ______
Revenue 27,975 - 27,975
Cost of sales (21,640) - (21,640)
______ ______ ______
Gross profit 6,335 - 6,335
Distribution costs (1,905) - (1,905)
Administrative expenses (2,407) 1,449 (958)
______ ______ ______
Operating profit before finance costs 2,023 1,449 3,472
Financial income 813 - 813
Finance costs (997) - (997)
______ ______ ______
Profit before tax 1,839 1,449 3,288
Income tax expense (569) (292) (861)
______ ______ ______
Profit for the period 1,270 1,157 2,427
______ ______ ______
Attributable to:
Equity holders of the parent 1,270 1,157 2,427
______ ______ ______
Earnings per share
Basic (p) 6.7
______
Diluted (p) 6.7
______
Consolidated statement of recognised income and expense
for the six months ended 30 June 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
£000 £000 £000
______ ______ ______
(Losses)/gains on investment in foreign subsidiary (514) 487 846
Effective portion of change in fair value of cash flow 147 - (79)
hedges
Actuarial gains/(losses) on defined benefit schemes 92 (368) (42)
Tax on items taken directly to equity (28) 110 13
______ ______ ______
Net (expense)/income recognised directly in equity (303) 229 738
Profit for the period 301 717 2,427
______ ______ ______
Total recognised income and expense for the period (2) 946 3,165
______ ______ ______
Attributable to equity holders of the parent (2) 946 3,165
______ ______ ______
Consolidated balance sheet
as at 30 June 2006
30 June 30 June 31 December
2006 2005 2005
Note £000 £000 £000
______ ______ ______
Assets
Property, plant and equipment 27,841 28,883 28,364
Deferred tax assets 147 149 132
______ ______ ______
Total non-current assets 27,988 29,032 28,496
Inventories 3,824 3,698 3,933
Trade and other receivables 7,275 6,581 6,182
Cash and cash equivalents 124 137 432
______ ______ ______
Total current assets 11,223 10,416 10,547
______ ______ ______
Total assets 39,211 39,448 39,043
______ ______ ______
Equity
Issued share capital 6 (1,816) (1,814) (1,816)
Share premium 6 (13,753) (13,727) (13,753)
Capital redemption reserve 6 (5) (5) (5)
Translation reserve 6 244 89 (270)
Hedging reserve 6 (68) - 79
Retained earnings 6 (9,172) (8,501) (9,857)
______ ______ ______
Total equity (24,570) (23,958) (25,622)
______ ______ ______
Liabilities
Loans and borrowings (900) (1,300) (1,100)
Employee benefits (4,873) (7,570) (5,220)
Deferred tax liabilities (2,721) (2,194) (2,730)
______ ______ ______
Total non-current liabilities (8,494) (11,064) (9,050)
______ ______ ______
Bank overdraft (1,373) (265) -
Loans and borrowings (400) (397) (400)
Income tax payable (330) (611) (698)
Trade and other payables (4,044) (3,153) (3,273)
______ ______ ______
Total current liabilities (6,147) (4,426) (4,371)
______ ______ ______
Total liabilities (14,641) (15,490) (13,421)
______ ______ ______
Total equity and liabilities (39,211) (39,448) (39,043)
______ ______ ______
Consolidated cash flow statement
for the six months ended 30 June 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
£000 £000 £000
______ ______ ______
Cash flows from operating activities
Profit for the period 301 717 2,427
Adjustments for:
Depreciation 1,623 1,693 3,322
Loss on sale of property, plant and equipment 3 5 -
Financial income (441) (409) (813)
Finance costs 528 515 997
Equity-settled share-based payment expenses 40 29 (14)
Income tax expense 130 29 861
______ ______ ______
2,184 2,579 6,780
Increase in trade and other receivables (975) (797) (346)
Decrease/(increase) in inventories 29 (554) (704)
Increase in trade and other payables 665 559 334
Decrease in provisions and employee benefits (186) (30) (2,003)
______ ______ ______
1,717 1,757 4,061
Interest paid (49) (94) (151)
Income taxes paid (551) (429) (713)
______ ______ ______
Net cash from operating activities 1,117 1,234 3,197
______ ______ ______
Cash flow from investing activities
Interest received 4 13 26
Acquisition of property, plant and equipment (1,541) (415) (1,070)
______ ______ ______
Net cash used in investing activities (1,537) (402) (1,044)
______ ______ ______
Cash flow from financing activities
Proceeds from the issue of share capital - - 49
Repayment of borrowings (200) (200) (400)
Payment of finance lease liabilities - (60) (57)
Dividends paid (1,090) (1,088) (1,631)
______ ______ ______
Net cash used in financing activities (1,290) (1,348) (2,039)
______ ______ ______
Net (decrease)/increase in cash and cash equivalents (1,710) (516) 114
Cash and cash equivalents at beginning of period 432 298 298
Effect of exchange rate fluctuations on cash held 29 90 20
______ ______ ______
Cash and cash equivalents at the end of period (1,249) (128) 432
______ ______ ______
Cash and cash equivalents for the purpose of the cash flow statement includes
bank overdrafts.
Notes to the interim financial statements
for the six months ended 30 June 2006
1. Basis of preparation
This interim financial information has been prepared applying the accounting
policies and presentation that were applied in the preparation of the Company's
published consolidated financial statements for the year ended 31 December 2005.
The comparative figures for the financial year ended 31 December 2005 are not
the Company's statutory accounts for that financial year. Those accounts have
been reported on by the Company's auditor and delivered to the Registrar of
Companies. The report of the auditor was (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a statement under
section 237(2) or (3) of the Companies Act 1985.
2. Segment reporting
The Group manufactures and sells high performance foams for specialist markets
worldwide. These fall into two main business segments best categorised by their
constituent raw materials.
- Polyolefins: these foams are made from olefinic homopolymer and copolymer
resin. The most common resin used is polyethylene.
- High performance polymers: these foams exhibit high performance on certain key
properties, such as improved chemical, flammability or temperature performance,
due to the resins on which they are based. Turnover in the segment is currently
derived from our ZOTEK(R) F foams made from PVDF fluoropolymer. Other polymers
being assessed in development include polyamide (nylon) and silicone.
Due to our unique manufacturing technology Zotefoams can produce polyolefin
foams with superior performance to other manufacturers. However, our strategy is
to use the capabilities of our technology to produce foams from other materials
as well as polyolefins. The development of foams from high performance polymers
business is currently in its early stages with development and marketing costs
exceeding revenues.
High
performance
Polyolefins polymers Consolidated
Six months ended 30 June 2006 £000 £000 £000
______ ______ ______
Revenue 15,609 266 15,875
Pre-exceptional result 1,885 (275) 1,610
______ ______ ______
Exceptional item * (1,092) - (1,092)
______ ______ ______
Post-exceptional result 793 (275) 518
______ ______ ______
* The exceptional item relates to costs incurred in respect of the
termination of a commercial relationship with the Sekisui Group which was
announced in March 2006.
High
performance
Polyolefins polymers Consolidated
Six months ended 30 June 2005 £000 £000 £000
______ ______ ______
Revenue 13,528 163 13,691
Pre-exceptional result 1,255 (197) 1,058
______ ______ ______
Exceptional item * - - (206)
______ ______ ______
Post-exceptional result - - 852
______ ______ ______
* The exceptional item consists of bid costs relating to legal, advisory and
other costs incurred in respect of a preliminary approach for the share capital
of the Company which was announced in January 2005.
3. Taxation
Six months Six months
ended ended
30 June 30 June
2006 2005
£000 £000
______ ______
Current tax:
UK corporation tax 170 465
Foreign tax 12 (6)
______ ______
182 459
Deferred tax (52) (430)
______ ______
130 29
______ ______
The Group's consolidated effective tax rate for the six months ended 30 June
2006 was 30%. In 2005 the effective tax charge was 4% primarily due to the
partial recognition of US tax losses as a deferred tax asset.
4. Dividends
Six months Six months
ended ended
30 June 30 June
2006 2005
£000 £000
______ ______
Final dividend for the year ended 31 December 2005 of 3.0p 1,090 1,087
(2004: 3.0p) per share
______ ______
The final dividend for the year ended 31 December 2005 was paid on 26 May 2006.
A proposed interim dividend for the year ended 31 December 2006 of 1.5p per
share (2005: 1.5p) was approved by the Board on 27 July 2006 and has not been
included as a liability as at 30 June 2006.
5. Earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
Six months Six months
ended ended
30 June 30 June
2006 2005
£000 £000
______ ______
Earnings
Earnings for the purpose of basic earnings per share being net profit 301 717
attributable to equity holders of the parent
Earnings for the purposes of diluted earnings per share 301 717
______ ______
Number of shares Number Number
Weighted average number of ordinary shares for the purposes of basic 36,319,924 36,260,296
earnings per share
Effect of dilutive potential ordinary shares:
Share options 66,041 81,600
Weighted average number of ordinary shares for the purposes of diluted 36,385,965 36,341,896
earnings per share
______ ______
6. Capital and reserves
Reconciliation of movement in capital and reserves
Capital
Share Share redemption Translation
Capital premium reserve reserve
£'000 £'000 £'000 £'000
______ ______ ______ ______
Balance as at 1 January 2006 1,816 13,753 5 270
Total recognised income and expense - - - (514)
Financial instruments - - - -
Equity settled share based payments - - - -
Dividends - - - -
______ ______ ______ ______
Balance as at 30 June 2006 1,816 13,753 5 (244)
______ ______ ______ ______
Reconciliation of movement in capital and reserves (continued)
Hedging Retained Total
reserve Earnings equity
£'000 £'000 £'000
______ ______ ______
Balance as at 1 January 2006 (79) 9,857 25,622
Total recognised income and expense - 365 (149)
Financial instruments 147 - 147
Equity settled share based payments - 40 40
Dividends - (1,090) (1,090)
______ ______ ______
Balance as at 30 June 2006 68 9,172 24,570
______ ______ ______
Independent review report to Zotefoams plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2006 which comprises the Consolidated Income
Statement, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement,
the Consolidated Statement of Recognised Income and Expense and the related
notes. We have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Listing
Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the Company those matters we are required to state to it
in this report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the Company for
our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The Interim Report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the Interim Report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the UK. A review consists
principally of making enquiries of management and applying analytical procedures
to the financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities and
transactions. It is substantially less in scope than an audit performed in
accordance with International Statements on Auditing (UK and Ireland) and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.
KPMG Audit Plc
Chartered Accountants
1 Forest Gate
Brighton Road
Crawley RH11 9PT
7 August 2006
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