TIDMZTF
RNS Number : 3392N
Zotefoams PLC
08 August 2017
Tuesday 8 August 2017
Zotefoams plc
Interim Report for the Six Months Ended 30 June 2017
Record organic sales growth
Continuing to invest to meet anticipated future demand
Zotefoams plc ("Zotefoams", or "the Group" or "the Company"), a
world leader in cellular material technology, today announces its
interim results for the six months ended 30 June 2017.
Highlights
-- 25% increase in Group Revenue (14% constant currency) to
GBP33.84m (2016: GBP27.07m), with all business units delivering
sales growth:
o Polyolefin Foams sales up 18%, with record volumes 5% ahead of
previous year
o High Performance Products sales up 57%, driven by ZOTEK(R)
PEBA elastomeric foams and T-FIT(R) insulation
o MuCell Extrusion sales up 77%, largely due to completion of
largest individual equipment order
-- Adjusted profit before tax(1) up 24% to GBP3.97m (2016: GBP3.21m)
-- Gross profit margin increase to 35.5% (2016 restated: 34.2%)
-- Continued investment in people and assets to pursue our targeted opportunities
-- Interim dividend increased by over 3% to 1.91 pence
-- Post period end, the Group continues to trade in line with
the Board's expectations and the Board remains confident in the
long-term prospects for the business
Financial highlights
Six months Six months Change
ended ended
30 June 30 June
2017 2016
GBPm GBPm %
Group Revenue 33.84 27.07 25
Gross Profit 12.02 9.27(2) 30
Gross Profit margin 35.5% 34.2%
Operating Profit pre
exceptional item 4.10 3.33 23
Operating Profit post
exceptional item 3.10 3.07 1
Adjusted Profit before
tax1 3.97 3.21 24
Profit before tax pre
exceptional item 3.81 3.03 26
Profit before tax post
exceptional item 2.81 2.77 1
Basic eps (p) pre exceptional
item 7.04 5.78 22
Basic eps (p) post exceptional
item 5.20 5.18 -
Interim dividend (p) 1.91 1.85 3
(1) Before amortisation of acquired intangible assets and
exceptional items.
(2) Adjusted for reallocation of certain costs between cost of
goods sold and distribution and administrative expenses.
Commenting on the results, Steve Good, Chairman said:
"Zotefoams' ambition is to be the world leader in cellular
materials technology in our chosen markets and, in the period, we
have delivered strong organic growth while continuing to invest to
realise this ambition.
During the first half of 2017 Zotefoams has grown revenues
across all business units, building on successful product
development as well as investment in sales and marketing, over the
recent past, and beneficial exchange rates. We enter the second
half of the year with a strong order book, a differentiated product
portfolio, continued growth expectations across all business units
and looking forward to commissioning our Walton, Kentucky, USA
facility, which will increase global capacity by approximately
20%.
The Group continues to trade in line with the Board's
expectations and the Board remains confident in the long-term
prospects for the business".
Enquiries:
Zotefoams plc +44 (0)208 664 1600
David Stirling, Group
CEO
Gary McGrath, Group CFO
FTI Consulting +44 (0)203 727 1000
Victoria Foster Mitchell
/ Simon Conway
About Zotefoams plc
Zotefoams plc (LSE - ZTF) is a world leader in cellular
materials technology. Using a unique manufacturing process with
environmentally friendly nitrogen expansion, Zotefoams produces and
sells lightweight AZOTE(R) polyolefin and ZOTEK(R) high-performance
foams for diverse markets worldwide. Zotefoams uses its own
cellular materials to manufacture T-FIT(R) advanced insulation for
demanding industrial markets. In addition, Zotefoams owns and
licenses patented MuCell(R) microcellular foam technology,
developed specifically for extrusion applications, from a base in
Massachusetts, USA to customers worldwide.
Zotefoams is headquartered in Croydon, UK, with additional
manufacturing sites in Kentucky and Oklahoma, USA (foam products
manufacture and conversion), Massachusetts, USA (MuCell Extrusion)
and Jiangsu Province, China (T-FIT(R)).
www.zotefoams.com
AZOTE(R), ZOTEK(R), T-FIT(R) are registered trademarks of
Zotefoams plc
MuCell(R) is a registered trademark of Trexel Inc.
Results overview
In the first six months of 2017 Group revenue increased by 25%
to a record GBP33.84m (2016: GBP27.07m). In constant currency,
growth was 14%, with a strong sales performance across all business
units.
Gross profit increased by 30% to GBP12.02m (2016 restated:
GBP9.27m) and margin improved by 130 basis points to 35.5% from
34.2%, driven by the positive operational gearing of higher sales,
improving sales mix and beneficial exchange rates. Profit before
tax and exceptional item grew by 26% to GBP3.81m (2016 before
exceptional item: GBP3.03m), while adjusted profit before tax
(before amortisation of acquired intangible assets and exceptional
items) was up 24%, at GBP3.97m (2016: GBP3.21m).
In the period, following legal advice received by the pension
trustees and an estimate calculated by the actuaries, the Company
has provided GBP1m for potential additional liabilities in its
Defined Benefit Pension Scheme (the "DB Scheme").
Basic earnings per share before exceptional item was up 22% at
7.04p (2016: 5.78p). The Directors have decided to increase the
interim dividend to 1.91p per share (2016: 1.85p), an increase of
over 3%, reflecting the Board's continued confidence in the Group's
future.
Currency review
As a predominantly UK-based exporter, Zotefoams has over 80% of
its sales denominated in US Dollars and Euros. With most costs
incurred in Sterling, other than our main raw materials which are
denominated in Euros and some materials, staff and operational
costs, which are in US Dollars, movements in foreign exchange rates
can have a significant impact on our results. The average Euro rate
was 1.16:GBP1 for the first six months of 2017 (equivalent 2016
rate 1.28:GBP1) and the average US Dollar rate was 1.27:GBP1
(equivalent 2016 rate 1.42:GBP1).
The period-end exchange rates and, in particular, the movement
between the period opening and closing rates, generated a combined
forward contract and non-cash translation loss of GBP0.27m (2016:
gain of GBP0.51m), which is included in administration
expenses.
Financial and operational review
Polyolefin Foams
In constant currency, sales in Polyolefin Foams increased by 8%,
with volumes 5% ahead of 2016 and more favourable selling prices.
The UK market was relatively flat and sales performance reflected
this. We increased sales in all other major markets, with North
America up 14%, benefiting from a full six months of added value
from our investment in Zotefoams MidWest. In continental Europe
revenues increased by 7%, driven by our direct sales initiative to
increase market share in Germany, and sales to the Far East
delivered 15% growth against a weaker comparative performance in
2016. In reporting currency, Polyolefin Foams sales increased 18%
to GBP26.90m (2016: GBP22.79m).
Operating profit in Polyolefin Foams, before exceptional items,
increased by 50% to GBP5.73m (2016: GBP3.81m) as we benefitted from
improved operational gearing and efficiency improvements, due to
our UK facility operating close to effective capacity, combined
with more favourable foreign exchange rates. The Euro-denominated
average cost of our main raw material, low density polyethylene
('LDPE'), over the six-month period was similar to the equivalent
period of 2016.
High-Performance Products ('HPP')
HPP sales increased 40% in constant currency, driven by a strong
ramp-up in sales of our ZOTEK(R) PEBA foam for sports equipment,
together with significant growth in T-FIT(R) insulation products.
Revenue from ZOTEK(R) F fluoropolymer foams, mainly used in
aviation, declined slightly in the period, largely due to continued
destocking at one of our main customers, which is expected to be
complete by the end of the year. Sales of Nylon foams were modestly
ahead of the comparative period, with some shipments delayed into
July due to carrier issues at the end of the period. In reporting
currency sales of GBP4.98m were 57% above the previous year (2016:
GBP3.17m).
Operating profit in HPP increased by 117% to GBP0.65m (2016:
GBP0.30m), delivering a 13% profit margin for the period (2016:
9%). ZOTEK(R) PEBA and ZOTEK(R) F foams are both of a scale to be
profitable and we are now focussing on operational efficiencies as
well as driving sales growth. Kunshan ZOTEK King Lai Ltd (KZKL),
our Chinese insulation products business, is now operational and
undergoing final optimisation and validation before initiating full
commercial manufacturing. The record sales for T-FIT(R) Clean
insulation, therefore, continued to be substantially manufactured
by a third party using our ZOTEK(R) F sheet foams, adversely
impacting margins in the period. We have made good progress since
the turn of the year to address this issue and also prepare for the
launch of additional T-FIT(R) insulation materials designed for the
food, dairy and beverage market as well as a range of products for
general industrial insulation, both markets with large potential.
Additionally, we continue to invest market-development resource in
nylon foams and see good opportunities here, although this product
line is more likely to
move to profitability over a medium-term time scale.
MuCell Extrusion LLC ('MEL')
MEL licenses microcellular foam technology and sells related
machinery. Sales increased significantly to GBP1.96m, a 77%
increase over the prior year (2016: GBP1.11m), driven by the
shipment of a full extrusion line to a customer in Japan,
representing MEL's largest individual equipment order. The business
unit additionally shipped equipment to convert six additional
customer lines in H1:2017 (2016: 11 lines). However, in the period
our focus has been on the conversion of existing lines into royalty
generating units, as we see the large installed base (111 units as
at the end of 2016) offering the best potential for value creation.
The business is making good progress in this regard, particularly
in the films market.
To continue to develop our technology and Intellectual Property
offering, and meet the demands of an increasing customer base, we
have successfully attracted a number of highly skilled technical
and engineering staff during the period. While the initial cost
will be high for a business of the size of MEL, we are confident
that, given the potential growth that exists, the investment in the
business is the correct approach to create value from our
world-leading portfolio of microcellular-foaming technology.
MEL reported an operating loss after amortisation costs of
GBP0.87m (2016: loss GBP0.40m). This loss includes a one-off charge
of GBP0.31m arising from inventory adjustments.
Investment in cost base
The Group continues to pursue its expansion strategy, founded on
proprietary cellular-materials technology with an increasing
portfolio of differentiated products. Organic growth with unique
products requires the Group to actively invest in, and reprioritise
where needed, technical, sales-focused and administration resources
to create, execute and manage this growth. Included within
distribution and administrative expenses in the Group's Income
Statement are sales and marketing, 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. These costs, excluding the
impact of foreign exchange hedges and translation, increased to
GBP7.65m in H1 2017 (2016 restated: GBP6.71m - where certain costs,
previously recognised as cost of sales, have been reclassified to
distribution and administrative costs). The Group expects this
investment to continue, not least with the commissioning of our
Walton, Kentucky, USA facility in the second half of the year,
which will increase global capacity by approximately 20%.
Group Financing
The Group has secured additional funding as it anticipates the
near-term investment and working capital needs of its strong
portfolio of opportunities. In March 2017, it extended the
Multi-Currency Revolving Credit Facility with Barclays Bank from
GBP8m to GBP10m, with all terms and conditions remaining the same.
In August 2017, it secured further funding by way of a five year,
GBP7.5m fixed rate loan facility with Lombard North Central, with
whom the Group has a longstanding relationship.
Tax and Cash Flow
Zotefoams' estimated effective tax rate for the period was 19%
(2016: 19%), which is slightly below the UK corporation tax rate
for the period of 20%. Cash generated from operations was GBP5.80m
(2016: GBP4.93m). Capital expenditure was GBP4.96m, GBP3.30m higher
than depreciation and amortisation, and primarily related to the
final stages of the Group's capacity expansion at the Kentucky,
USA, manufacturing facility. Together with tax and dividend
payments, net debt (cash less bank overdrafts and other bank
borrowings) increased by GBP1.13m from GBP12.56m at 31 December
2016 to GBP13.69m.
Pensions
In 2001 the Company closed the DB Scheme to new members. In 2005
the DB Scheme was closed to future accrual of benefits and all
active members at that time transferred to a defined contribution
scheme, substantially de-risking the Company's financial and
accounting exposure to the DB Scheme's obligations. In common with
many companies at the time, the Company took advice on the closure
process. Following recent legal cases challenging the validity of
previous benefit scheme closures, the Company recommended that the
Trustees take further legal advice regarding the closure of the DB
Scheme in 2005. The outcome of this advice to the Trustees
indicates that the DB Scheme was properly closed to future accrual
of service, however the linkage with future increases in salary had
not been broken. As the sponsoring employer, the Company may
therefore have an additional liability for pension costs. The
Company has not yet taken its own legal advice but feels it is
appropriate to provide for the possible increase in liability.
The DB Scheme actuaries estimate an additional potential
liability of approximately GBP1m. The Directors are considering
options available to mitigate this potential liability and seek
redress where appropriate. The exceptional charge represents 3% of
the DB Scheme obligation as at 31 December 2016 and would represent
an increase in cash outflows over the remaining average service
lives of the affected employees. This is not considered by the
Directors to have a material impact on the Group's financial
condition or future prospects.
A full actuarial valuation of the DB Scheme is scheduled for
this year, as at 5 April 2017, in line with the requirement to have
a triennial valuation. The previous triennial actuarial valuation,
on a Statutory Funding Objective basis, calculated a deficit for
the Pension Scheme of GBP2.50m. As a result, the Company agreed
with the Trustees to make contributions to the DB Scheme of
GBP41,000 per month until April 2020 to eliminate this deficit. In
addition, the Company pays the ongoing DB Scheme expenses of
GBP10,600 per month.
In June 2016, the Company obtained guidance from the actuaries
to increase the DB pension deficit by an additional GBP2.50m,
following falls in corporate bond yields during the period. No
significant changes in market conditions in the 12 months ended
June 2017 have occurred and therefore no valuation has been
performed, in line with guidance from the actuaries.
Capital Expenditure
Zotefoams is investing significantly in capacity to support
future growth. Our largest project is extending our existing
facility in Kentucky, USA., in total costing approximately $31m.
The first high-pressure autoclave was delivered in March 2017 and
the related gassing systems are currently being fitted. Other than
this, all other ancillary equipment is largely in place, with the
building infrastructure, raw material and extruder testing
complete. Expected start-up is the fourth quarter. The second
high-pressure autoclave was delivered to the US plant in July 2017
and will be brought into service when needed, at an additional cost
of approximately $6m.
We also continue to invest in our Croydon, UK facility,
increasing production capacity and capability. In the first half of
2017, as well as delivering projects to eliminate capacity
bottlenecks and improve quality and efficiency, our team
commissioned a polyethylene extrusion line and two low-pressure
autoclaves for expansion of HPP products.
Employees and Talent Management
Talent management is becoming increasingly important as
Zotefoams grows and evolves. The opportunities we have, in new
products, markets and geographies, require that we identify and
develop the right people to define and deliver to our potential.
Over the past six months we have continued to recruit to meet the
needs of our business.
On behalf of the Board, we would like to thank all our employees
for their continued contribution to Zotefoams in the period.
Dividend
Reflecting the Board's continued confidence in the Group's
future, the Directors have increased the interim dividend by over
3% to 1.91 pence per share (2016: 1.85 pence). The dividend will be
paid on 12 October 2017 to shareholders on the Company's register
at the close of business on 15 September 2017.
Principal Risks and Uncertainties
Zotefoams' business and share price may be affected by a number
of risks, not all of which are within our control. The process
Zotefoams has in place for identifying, assessing and managing
risks is set out in the Company statement of Principal Risks and
Uncertainties on pages 24 to 27 of the 2016 Annual Report. 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 and detailed explanations of these can be found in the 2016
Annual Report. Broadly, these risks include operational disruption,
supply chain disruption, technological change and competitor
activity, pension liabilities, foreign exchange, macro-economic
factors, financing, commercial and people.
Current Trading and Prospects
In our AZOTE(R) Polyolefin Foams business, trading has continued
strongly through July 2017 and the order book remains strong.
Foreign exchange rates are currently at similar levels to those
experienced in the second half of 2016 and therefore we anticipate
no significant transactional impact for the remainder of the year.
Indications are that pricing of LDPE will remain at a similar level
to the first six months of this year. In our HPP business, we
expect second-half growth to revert to our long-term growth trend
expectations, after a very strong growth rate in the first half. In
MEL, we expect to make continued progress in converting existing
lines into production and benefit from the corresponding royalty
income.
Outlook
We enter the second half of the year with a strong order book, a
differentiated product portfolio, continued growth expectations
across all business units and looking forward to commissioning our
Walton, Kentucky, USA facility, which will increase global capacity
by approximately 20%.
The Group continues to trade in line with the Board's
expectations and the Board remains confident in the long-term
prospects for the business.
S P Good D B Stirling
Chairman Group CEO
7 August 2017 7 August 2017
ZOTEK(R), AZOTE(R) and T-FIT(R) are registered trademarks of
Zotefoams plc. MuCell(R) is a registered trademark of Trexel
Inc.
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 European Union 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
Annual Report for 31 December 2016. A list of current Directors is
maintained on the Zotefoams plc website: www.zotefoams.com
The maintenance and integrity of the Zotefoams plc website is
the responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
By order of the Board:
S P Good G C McGrath
Chairman Group CFO
7 August 2017 7 August 2017
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT FOR THE SIX
MONTHSED 30 JUNE 2017
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016* 2016*
(unaudited) (unaudited) (audited)
Note GBP'000 GBP'000 GBP'000
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Group revenue 7 33,842 27,069 57,376
Cost of sales (21,826) (17,799) (36,838)
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Gross profit 12,016 9,270 20,538
Distribution costs (2,603) (2,760) (5,551)
Administrative
expenses
pre exceptional
item (5,313) (3,177) (7,341)
Exceptional item 15 (1,000) (262) (242)
Total administrative
expenses (6,313) (3,439) (7,583)
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Operating profit 3,100 3,071 7,404
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Operating profit
pre exceptional
item 4,100 3,333 7,646
Finance costs (287) (288) (393)
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Net finance costs (287) (288) (393)
Share of loss from
joint venture (6) (17) (21)
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Profit before income
tax 2,807 2,766 6,990
Profit before income
tax pre exceptional
item 3,807 3,028 7,232
Income tax expense 8 (530) (522) (1,294)
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Profit for the
period 2,277 2,244 5,696
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Profit for the
period
pre exceptional
item 3,084 2,506 5,890
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Attributable to:
Equity holders of
the Parent 2,277 2,266 5,795
Non-controlling
interest - (22) (99)
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
2,277 2,244 5,696
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Earnings per share:
Basic (p) 10 5.20 5.18 13.25
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
Diluted (p) 10 5.11 5.11 13.07
--------------------- ----- ----------------------------- ---------------------------- ---------------------------
* In preparing the year ended 2016 Annual Report the Directors
considered the classification of certain costs within the
Consolidated Income Statement and, based upon this review,
reallocated certain balances between cost of sales and distribution
and administrative expenses. In order for the 30 June 2017
condensed consolidated interim Income Statement to be comparable,
the same reclassification was performed for the six months ended 30
June 2016. Further details can be found in Note 7.
The notes below form an integral part of these condensed
consolidated interim financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 30 JUNE 2017
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
-------------------------------- ----------------------------- ------------ -------------
Profit for the period 2,277 2,244 5,696
-------------------------------- ----------------------------- ------------ -------------
Other comprehensive
income/(expense)
Items that will not
be reclassified to profit
or loss
Foreign exchange translation
(losses)/gains on investment
in foreign subsidiaries (2,081) 2,171 4,319
Actuarial losses on
post employment benefit
obligations - (2,534) (2,707)
Tax relating to items
that will not be reclassified - 481 514
-------------------------------- ------------ -------------
Total items that will
not be reclassified
to profit or loss (2,081) 118 2,126
-------------------------------- ----------------------------- ------------ -------------
Items that may be re-classified
subsequently to profit or loss
Effective portion of
changes in fair value
of cash flow hedges 497 (915) (159)
Tax relating to items
that may be reclassified (94) 174 29
-------------------------------- ----------------------------- ------------ -------------
Total items that may
be reclassified subsequently
to profit or loss 403 (741) (130)
-------------------------------- ----------------------------- ------------ -------------
Other comprehensive
(expense)/income for
the period, net of tax (1,678) (623) 1,996
-------------------------------- ----------------------------- ------------ -------------
Total comprehensive
income for the period 599 1,621 7,692
-------------------------------- ----------------------------- ------------ -------------
Attributable to:
Equity holders of the
parent 599 1,643 7,783
Non-controlling interest - (22) (91)
-------------------------------- ----------------------------- ------------ -------------
Total comprehensive
income for the period 599 1,621 7,692
-------------------------------- ----------------------------- ------------ -------------
The notes below form an integral part of these condensed
consolidated interim financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
30-Jun 30-Jun 31-Dec
2017 2016 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
------------------------------- ------------ ------------ ----------
Non-current assets
Property, plant and
equipment 50,975 41,983 47,500
Intangible assets 7,080 7,219 7,547
Investments in joint
ventures 136 163 142
Deferred tax assets 859 669 709
------------------------------- ------------ ------------ ----------
Total non-current assets 59,050 50,034 55,898
------------------------------- ------------ ------------ ----------
Current assets
Inventories 12,244 10,898 12,307
Trade and other receivables 19,844 15,605 20,366
Derivative financial
instruments 223 - 38
Cash and cash equivalents 2,530 2,578 2,868
------------------------------- ------------ ------------ ----------
Total current assets 34,841 29,081 35,579
------------------------------- ------------ ------------ ----------
Total assets 93,891 79,115 91,477
------------------------------- ------------ ------------ ----------
Current liabilities
Trade and other payables (11,730) (8,482) (10,195)
Derivative financial
instruments (80) (1,110) (392)
Current tax liability (1,489) (447) (1,035)
Interest-bearing loans
and borrowings (10,251) (1,146) (9,156)
Bank overdraft (1,104) (2,900) (805)
------------------------------- ------------ ------------ ----------
Total current liabilities (24,654) (14,085) (21,583)
------------------------------- ------------ ------------ ----------
Non-current liabilities
Interest-bearing loans
and borrowings (4,869) (5,765) (5,464)
Deferred tax liabilities (550) (499) (608)
Post employment benefits (8,311) (7,621) (7,439)
------------------------------- ------------ ------------ ----------
Total non-current liabilities (13,730) (13,885) (13,511)
------------------------------- ------------ ------------ ----------
Total liabilities (38,384) (27,970) (35,094)
------------------------------- ------------ ------------ ----------
Total net assets 55,507 51,145 56,383
------------------------------- ------------ ------------ ----------
Equity
Issued share capital 2,221 2,221 2,221
Own shares held (27) (31) (31)
Share premium 24,340 24,340 24,340
Capital redemption reserve 15 15 15
Translation reserve 3,866 3,807 5,947
Hedging reserve 84 (936) (319)
Retained earnings 25,008 21,613 24,210
------------------------------- ------------ ------------ ----------
Total equity attributable
to the equity holders
of the Parent 55,507 51,029 56,383
------------------------------- ------------ ------------ ----------
Non-controlling interest - 116 -
------------------------------- ------------ ------------ ----------
Total equity 55,507 51,145 56,383
------------------------------- ------------ ------------ ----------
The notes below form an integral part of these condensed
consolidated interim financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE
SIX MONTHSED 30 JUNE 2017
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
--------------------------------- ------------ ------------ -------------
Cash flows from operating
activities
Profit for the period 2,277 2,244 5,696
Adjustments for:
Depreciation, amortisation
and impairment 1,649 1,780 3,595
Finance costs 287 288 393
Share of loss from joint
venture 6 17 21
Employee defined benefit
service charges 1,000 - -
Equity-settled share-based
payments 240 75 269
Taxation 530 521 1,294
--------------------------------- ------------ ------------ -------------
Operating profit before
changes in working capital
and provisions 5,989 4,925 11,268
(Increase)/decrease in
trade and other receivables (326) 2,175 (1,686)
Increase in inventories (341) (801) (2,121)
Increase/(decrease) in
trade and other payables 796 (1,039) (412)
Employee defined benefit
contributions (318) (330) (692)
--------------------------------- ------------ ------------ -------------
Cash generated from operations 5,800 4,930 6,357
Interest paid (108) (109) (187)
Income tax paid (208) (715) (1,000)
--------------------------------- ------------ ------------ -------------
Net cash generated from
operating activities 5,484 4,106 5,170
--------------------------------- ------------ ------------ -------------
Cash flows from investing
activities
Interest received - - -
Investment in non-controlling
interest - - (195)
Purchases of intangibles (78) (69) (443)
Purchases of property,
plant and equipment (4,885) (7,934) (12,140)
--------------------------------- ------------ ------------ -------------
Net cash used in investing
activities (4,963) (8,003) (12,778)
--------------------------------- ------------ ------------ -------------
Cash flows from financing
activities
Proceeds from options exercised
and issue of share capital - 30 30
Repurchase of own shares - - -
Repayment of borrowings (651) (457) (1,319)
Proceeds from borrowings 1,500 - 7,894
Investment in subsidiary
by non-controlling interest - - -
Dividends paid (1,710) (1,664) (2,474)
--------------------------------- ------------ ------------ -------------
Net cash used in financing
activities (861) (2,091) 4,131
--------------------------------- ------------ ------------ -------------
Net decrease in cash and
cash equivalents (340) (5,988) (3,477)
Cash and cash equivalents
at 1 January 2,063 5,269 5,269
Exchange (losses)/gains
on cash and cash equivalents (297) 397 271
--------------------------------- ------------ ------------ -------------
Cash and cash equivalents
at the end of period 1,426 (322) 2,063
--------------------------------- ------------ ------------ -------------
Cash and cash equivalents comprise cash at bank, short-term
highly liquid investments with a maturity date of less than three
months and bank overdrafts.
The notes below form an integral part of these condensed
consolidated interim financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 30 JUNE 2017
Own Capital
Share shares Share redemption Translation Hedging Retained Total
capital held premium reserve reserve reserve earnings equity
----------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- ---------------- ----------------- ---------------- --------------- --------------- --------------- ---------------- ----------------
Balance at 1
January 2017 2,221 (31) 24,340 15 5,947 (319) 24,210 56,383
---------------------- ---------------- ----------------- ---------------- --------------- --------------- --------------- ---------------- ----------------
Foreign exchange
translation
loss on investment
in subsidiaries - - - - (2,081) - - (2,081)
Effective portion
of changes in
fair value of
cash flow hedges
net of recycling - - - - - 497 - 497
Tax relating
to effective
portion of changes
in fair value
of cash flow
hedges net of
recycling - - - - - (94) - (94)
Profit for the
period - - - - - - 2,277 2,277
---------------------- ---------------- ----------------- ---------------- --------------- --------------- --------------- ---------------- ----------------
Total comprehensive
income/(expenditure)
for the period - - - - (2,081) 403 2,277 599
Transactions
with owners
of the Parent:
Options exercised - 4 - - - - (4) -
Equity-settled
share-based
payment transactions
net of tax - - - - - - 235 235
Dividends paid - - - - - - (1,710) (1,710)
---------------------- ---------------- ----------------- ---------------- --------------- --------------- --------------- ---------------- ----------------
Total transactions
with owners
of the Parent - 4 - - - - (1,479) (1,475)
---------------------- ---------------- ----------------- ---------------- --------------- --------------- --------------- ---------------- ----------------
Balance at 30
June 2017
(unaudited) 2,221 (27) 24,340 15 3,866 84 25,008 55,507
---------------------- ---------------- ----------------- ---------------- --------------- --------------- --------------- ---------------- ----------------
During the six-month period ended 30 June 2017, 79,512 shares
vested and were issued from the Zotefoams Employee Benefit Trust
('EBT') following the exercise of these options.
The notes below form an integral part of these condensed
consolidated interim financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 30 JUNE 2016
Own Capital Non-
Share shares Share redemption Translation Hedging Retained controlling Total
capital held premium reserve reserve reserve earnings interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at
1 January
2016 2,221 (38) 24,340 15 1,636 (195) 23,003 138 51,120
---------------------- -------- -------- -------- ----------- ------------ -------- --------- ------------ --------
Foreign exchange
translation
gains on
investment
in subsidiaries - - - - 2,171 - - - 2,171
Effective
portion of
changes in
fair value
of cash flow
hedges net
of recycling - - - - - (915) - - (915)
Tax relating
to effective
portion of
changes in
fair value
of cash flow
hedges net
of recycling - - - - - 174 - - 174
Actuarial
losses on
defined benefit
pension scheme - - - - - - (2,534) - (2,534)
Tax relating
to actuarial
loss on defined
benefit pension
scheme - - - - - - 481 - 481
Profit/(loss)
for the period - - - - - - 2,266 (22) 2,244
Total comprehensive
income/(expenditure)
for the period - - - - 2,171 (741) 213 (22) 1,621
---------------------- -------- -------- -------- ----------- ------------ -------- --------- ------------ --------
Transactions
with owners
of the Parent:
Options exercised - 7 - - - - 23 - 30
Equity-settled
share-based
payment transactions
net of tax - - - - - - 38 - 38
Dividends
paid - - - - - - (1,664) - (1,664)
---------------------- -------- -------- -------- ----------- ------------ -------- --------- ------------ --------
Total transactions
with owners
of the Parent - 7 - - - - (1,603) - (1,596)
Balance at
30 June 2016
(unaudited) 2,221 (31) 24,340 15 3,807 (936) 21,613 116 51,145
---------------------- -------- -------- -------- ----------- ------------ -------- --------- ------------ --------
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 MONTHSED 30 JUNE 2017
1. GENERAL INFORMATION
Zotefoams plc (the 'Company') and its subsidiaries (together,
'the Group') manufacture and sell cellular materials and, through
MuCell Extrusion LLC ('MEL'), licence microcellular foam technology
and supply related equipment. The Group has manufacturing sites in
the UK and the USA and sells into worldwide markets. The Company is
a public limited liability company incorporated and domiciled in
the UK. The address of the registered office is 675 Mitcham Road,
Croydon, CR9 3AL. The Company is listed on the London Stock
Exchange and is registered in England and Wales with Company Number
2714645.
2. BASIS OF PREPARATION
This condensed set of consolidated interim financial statements
has been prepared in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU.
As required by the Disclosure and Transparency Rules of the
Financial Conduct Authority, the condensed set of consolidated
interim financial statements has been prepared applying the
accounting policies and presentation that were applied in the
preparation of the Group's published consolidated financial
statements for the year ended 31 December 2016. Those consolidated
financial statements were prepared in accordance with IFRS as
adopted by the EU.
This condensed set of consolidated interim financial statements
has been reviewed, but not audited, and was approved for issue on 7
August 2017. This condensed set of consolidated interim financial
statements does not comprise statutory accounts within the meaning
of Section 434 of the Companies Act 2006. Statutory accounts for
the year ended 31 December 2016 were approved by the Board of
Directors on 20 March 2017 and delivered to the Registrar of
Companies. The independent audit 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.
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. Because 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.
Going concern
The Group meets its day-to-day working capital requirements
through its banking facilities. The Group's forecasts and
projections, taking account of reasonably possible changes in
trading performance, show that the Group should be able to operate
within the level of its current facilities. Having assessed the
principal risks and the other matters discussed in connection with
the viability statement as disclosed in the year ended 31 December
2016 Annual Report, the Directors considered it appropriate to
adopt the going concern basis of accounting in preparing its
condensed set of consolidated interim financial statements.
3. ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the
Group's published consolidated financial statements for the year
ended 31 December 2016, as described in those consolidated
financial statements, with the exception of tax, which is accrued
based on an estimated tax rate that would be applicable to
estimated annual earnings.
4. SEASONALITY OF OPERATIONS
The seasonality of Zotefoams' business has been largely
eliminated, with most variability derived from order timing from
HPP and MEL, as well as customer inventory management according to
their specific business needs. There remains an underlying cyclical
nature to its markets over the longer macroeconomic business cycle
as Zotefoams sells into a wide variety of business segments, many
of which are themselves cyclical.
5. ESTIMATES
The preparation of condensed consolidated interim financial
statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis for making the judgements about carrying values of assets and
liabilities that are not readily available from other sources.
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 as at and for the year ended 31
December 2016, with the exception of changes in estimates that are
required in determining the provision for income taxes.
6. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
A number of amendments to IFRSs became effective for the
financial year beginning on 1 January 2017, however, the Group did
not have to change its accounting policies or make material
retrospective adjustments as a result of adopting these new
standards.
7. 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 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, due to the
resins on which they are based. Turnover in the segment is
currently mainly derived from products manufactured from three main
polymer types: PVDF fluoropolymer, polyamide (nylon) and polyether
block amide (PEBA). Foams are sold under the brand names ZOTEK(R)
while technical insulation products manufactured from certain
materials are branded as T-FIT(R).
-- MuCell Extrusion LLC ('MEL'): licenses microcellular foam
technology and sells related machinery.
Polyolefin
Foams HPP MEL Consolidated
-------------------------- -------------------------- -------------------------- --------------------------
2017 2016 2017 2016 2017 2016 2017 2016
H1 H1 H1 H1 H1 H1 H1 H1
----------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Six months
ended
30 June
(unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Group
revenue 26,905 22,789 4,979 3,174 1,958 1,106 33,842 27,069
Segment
profit/(loss)
pre
amortisation 5,728 3,832 652 300 (704) (241) 5,676 3,891
Amortisation
of acquired
intangible
assets - (24) - - (165) (162) (165) (186)
---------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Segment
profit/(loss) 5,728 3,808 652 300 (869) (403) 5,511 3,705
Foreign
exchange
(losses)/gains - - - - - - (266) 510
Unallocated
central
costs - - - - - - (1,145) (882)
---------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating
profit/(loss)
pre
exceptional
item 5,728 3,808 652 300 (869) (403) 4,100 3,333
---------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Segment
assets 73,535 60,501 10,576 9,941 8,562 7,841 92,673 78,283
Unallocated
assets - - - - - - 1,218 832
---------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
assets - - - - - - 93,891 79,115
Segment
liabilities (33,855) (23,842) (1,606) (1,446) (804) (626) (36,265) (25,914)
Unallocated
liabilities - - - - - - (2,119) (2,056)
---------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total
liabilities - - - - - - (38,384) (27,970)
---------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Following a reassessment of cost classifications for the year
end 2016, certain costs at the Group's subsidiaries, previously
recognised in the period ended 30 June 2016 as cost of sales, have
been reclassified to distribution and administrative costs of
GBP0.7m and GBP0.5m respectively, impacting the Group's gross
margin percentage. For the year ended 31 December 2016, costs
previously recognised as cost of sales, were reclassified to
distribution and administrative costs of GBP1.3m and GBP0.9m
respectively, impacting the Group's gross margin percentage.
Rest
United of
Kingdom Continental North the
& Eire Europe America world Total
---------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
---------------------
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
--------------------- ------------ ------------ ------------ ------------ ------------
For the period
ended 30 June 2017
Group revenue from
external customers 6,409 12,454 9,757 5,222 33,842
Non-current assets 30,082 - 28,345 623 59,050
--------------------- ------------ ------------ ------------ ------------ ------------
For the period
ended 30 June 2016
Group revenue from
external customers 5,684 10,828 7,850 2,707 27,069
Non-current assets 28,281 - 21,155 598 50,034
--------------------- ------------ ------------ ------------ ------------ ------------
8. INCOME TAX EXPENSE
Six months Six months
ended ended
30 June 30 June
2017 2016
(unaudited) (unaudited)
GBP'000 GBP'000
----------------------- ------------ ------------
Current Tax:
UK Corporation Tax 611 433
Overseas taxation 27 3
----------------------- ------------ ------------
Adjustment in respect
of prior years - -
----------------------- ------------ ------------
Current taxation 638 436
Deferred Tax (108) 86
----------------------- ------------ ------------
Total tax charge 530 522
----------------------- ------------ ------------
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 six months ended 30 June 2017 was 19% (2016:19%).
Tax is accrued based on an estimated tax rate applicable to
estimated annual earnings.
9. DIVIDS
Six
months
Six months ended
ended 30
30 June June
2017 2016
(unaudited) (unaudited)
GBP'000 GBP'000
------------------------- ------------ ------------
Final dividend for the
year ended 31 December
2016 of 3.90p (2015:
3.80p) per share 1,710 1,664
------------------------- ------------ ------------
The final dividend for the year ended 31 December 2016 was paid
on 25 May 2017. The interim dividend of 1.91p (2016: 1.85p) per
share, amounting to GBP0.8m (2016: GBP0.8m) 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
2017.
10. EARNINGS PER SHARE
Earnings per ordinary share is calculated by dividing
consolidated profit after tax attributable to equity holders of the
Parent Company of GBP2.28m (2016: GBP2.27m) 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 2017
was 549,467 (2016: 628,979). 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 Six months
ended ended
30 June 30 June
2017 2016
(unaudited) (unaudited)
GBP'000 GBP'000
---------------------------- ------------ ------------
Weighted average number
of ordinary shares in
issue 43,819,872 43,715,063
Deemed issued for no
consideration 777,305 603,994
---------------------------- ------------ ------------
Diluted number of ordinary
shares issued 44,597,177 44,319,057
---------------------------- ------------ ------------
11. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial risks
including credit risk, interest rate risk, liquidity risk and
foreign currency risk.
The condensed consolidated interim financial statements do not
include all financial risk management information and disclosures
required in the annual financial statements; they should be read in
conjunction with the Group's annual financial statements as at 31
December 2016. There have been no changes in any risk management
policies since the year end.
Fair value estimation
The table below analyses financial instruments carried at fair
value, by valuation method. The different levels have been defined
as follows:
-- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
-- Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (Level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level
3).
The following table presents the Group's financial instruments
that are measured at fair value at 30 June 2017.
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------ ------------ ------------ ------------ ------------
Assets
Forward exchange
contracts - 223 - -
------------------ ------------ ------------ ------------ ------------
Total assets - 223 - -
------------------ ------------ ------------ ------------ ------------
Liabilities
Forward exchange
contracts - (80) - -
------------------ ------------ ------------ ------------ ------------
Total liabilities - (80) - -
------------------ ------------ ------------ ------------ ------------
The following table presents the Group's financial instruments
that are measured at fair value at 30 June 2016.
Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------- ------------- ------------ ------------ ------------
Liabilities
Forward exchange
contracts - (1,110) - (1,110)
------------------- ------------- ------------ ------------ ------------
Total liabilities - (1,110) - (1,110)
------------------- ------------- ------------ ------------ ------------
The forward exchange contracts have been fair valued using
forward exchange rates that are quoted in an active market.
Group's valuation process
The Group's finance department performs the valuation of forward
exchange contracts required for financial reporting purposes. This
is reported to the Audit Committee.
The results of the valuation processes are included in the
Group's monthly reporting to the Directors, which includes all
members of the Audit Committee.
Fair value of financial assets and liabilities measured at
amortised cost
The fair value of borrowings (excluding bank overdraft) is as
follows:
30 June 30 June
2017 2016
(unaudited) (unaudited)
GBP'000 GBP'000
------------- ------------ ------------
Current 10,251 1,146
Non-current 4,869 5,765
------------- ------------ ------------
Total 15,120 6,911
------------- ------------ ------------
The fair value of the following financial assets and liabilities
approximate to their carrying amount:
-- Trade and other receivables
-- Other current financial assets
-- Cash and cash equivalents (including bank overdraft)
-- Trade and other payables
-- Other current liabilities
12. RELATED PARTY TRANSACTIONS
There were no material related party transactions requiring
disclosure for the periods ended 30 June 2017 and 30 June 2016.
13. BORROWINGS
On 16 March 2017, the Group and Company increased its
multi-currency revolving credit facility ('RCF') by a further
GBP2m, bringing the total to GBP10m, secured on the property and
book debts of the Company. This facility has financial covenants on
net debt/EBITDA and EBIT/gross financing costs ratios. During 2016
an RCF of GBP8m was taken out and the bank overdraft facility
reduced to GBP2.0m.
14. CAPITAL COMMITMENTS
Capital expenditure commitments of GBP3.2m (2016: GBP9.5m) 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. EXCEPTIONAL ITEMS
Items that are material either because of their size or their
nature, or that are non-recurring, are considered as exceptional
items and are presented within the line items to which they best
relate. During the current period, following legal advice received
by the pension trustees and an estimate calculated by the
actuaries, the Company has provided GBP1m for potential additional
liabilities in its Defined Benefit Pension Scheme. This cost has
been included in the condensed consolidated interim Income
Statement as an operating exceptional cost.
During the prior period, the exceptional item related to
redundancy costs totalling GBP0.3m as a result of the efficiency
improvement programme, which have been included in the condensed
consolidated interim Income Statement as an operating exceptional
cost.
16. EVENTS OCCURING AFTER THE REPORTING PERIOD
An interim dividend of 1.91p per share (2016: 1.85p per share)
was proposed by the Board of Directors on 7 August 2017. It is
payable on 12 October 2017 to shareholders who are on the register
at 15 September 2017. This interim dividend 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 2017.
On 4 August 2017, the Group and Company raised a GBP7.5m debt
facility, secured on the plant and equipment, and fixtures and
fittings of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAEPXESXXEAF
(END) Dow Jones Newswires
August 08, 2017 02:00 ET (06:00 GMT)
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