Interim Results
Zotefoams PLC
07 August 2007
Zotefoams plc
Interim Results for Six Months Ended 30 June 2007
7 August 2007 -- Zotefoams plc, the world's leading manufacturer of cross-linked
block foam, today announces its interim results for the six months ended 30 June
2007.
Summary
• Revenue of £15.65 million (2006: £15.88 million)
• Polyolefin sales up 1% in constant currency but down 2% when converted
into sterling
• Revenue from High-Performance Polymers increased by 61% to £427,000
• Profit before tax £1.80 million (2006: £1.52 million excluding
exceptional items), up 18%*
• Gross margin of 28.3% (2006: 26.8%)
• Net debt of £2.52 million as at 30 June 2007 (2006: £2.55 million),
with continued capital refurbishment and upgrade programme
• Gearing at 30 June 2007 of 10% (2006: 10%)
• Basic EPS excluding exceptional items were 4.5p (2006: 2.9p), up 55%
• Interim dividend maintained at 1.5p per share (2006: 1.5p)
*Profit before tax in the six months ended June 2006 of £0.4 million included an
exceptional item of £1.1 million for costs incurred in terminating commercial
relationships with the Sekisui Group.
Nigel Howard, Chairman of Zotefoams, commented:
'The business has performed well in the first six months of 2007 with good
profit growth and improved gross margins. Zotefoams' continued investment in
capacity and in the development and marketing of new products shows the Board's
confidence in the future. We see encouraging signs with many customers and
applications for both our polyolefin and ZOTEK (R) foams. We therefore believe
the business is developing well and we look forward to the future with
optimism.'
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
Deborah Scott
Notes to editors
Zotefoams plc (LSE - ZTF) is the world's leading producer of light weight,
cross-linked, closed cell, block foams. These pure, consistent foams are
manufactured using a unique environmentally friendly nitrogen expansion
technology. Zotefoams was the first to develop cross-linked polyolefin foams
and is increasingly using its production technology to manufacture foamed
materials based on high performance polymers. Based in Croydon UK, Zotefoams
also manufactures in Kentucky USA and markets its products worldwide through a
global sales network.
Visit: http://www.zotefoams.com
Chairman's statement
Nigel Howard
Results
I am pleased to announce a healthy set of results for the business and,
importantly, continued progress on our strategy to develop sales of new products
outside our core polyolefin foam business. For the six months ending 30 June
2007 revenues were £15.65 million (2006: £15.88 million). Gross margin
increased to 28.3% (2006: 26.8%) and profit before tax and exceptional items
increased 18% to £1.80 million (2006: £1.52 million). Basic earnings per share
were 4.5p (2006: 2.9p before and 0.8p after exceptional items).
Revenue
Revenue for the six months ended 30 June 2007 was £15.65 million (2006: £15.88
million). Polyolefin foam sales increased by 1% in constant currency, although
in sterling this changed to a 2% decline principally because of the strength of
sterling in the period compared to the US dollar. High-performance polymer
sales increased by 61% in what is still a nascent business. In all markets our
approach is to work on end-user market development as well as support our direct
customers in developing specific market segments. We plan to continue to invest
our marketing resources in this manner.
Polyolefin foams
In Europe we built on our very strong performance in 2006, achieving a sales
growth rate of 3% for the six months to 30 June 2007. Within Europe our two
largest national markets, Germany and the UK, both exhibited good overall
growth. North America was affected by lower levels of spending in the
construction and military sectors combined with a temporary decline in purchases
by a medical customer, resulting in an overall decline in sales of 15% in local
currency. In Asia, which is currently around 3% of our business, we benefited
from directly employed sales resource with sales increasing by 87%.
High-performance polymer foams
Our product strategy exploits our unique manufacturing technology in the
development of high-performance polymer foams. This business is at an early
stage of development and revenues are expected to be lumpy and remain difficult
to predict for some time. In our high-performance polymers business sales
growth of 61% was primarily driven by a good performance in our ZOTEK (R) F
fluoropolymer foams in the North American aerospace market. Applications for
ZOTEK (R) F foams were also developed in markets such as high-performance
insulation where prospects for the future appear promising. Sales from our '
world-first' polyamide (nylon) foam are developing slowly with the initial
product considered too stiff for many of the applications trialled. However, we
remain confident of the potential for polyamide foam as market trials have shown
there is a substantial opportunity for a product which combines high-temperature
performance and hydrocarbon resistance. We are in the process of developing a
second generation polyamide foam and ultimately believe that we will develop a
portfolio of polyamide products, similar to our polyolefin business, to address
the needs of the marketplace.
Operations
Sales volumes for the six months to 30 June 2007 were at similar levels to the
same period last year. Gross margins increased to 28.3% (2006: 26.8%) with the
benefit of reduced sales commissions and operational improvements more than
offsetting energy price increases and the adverse impact of a stronger pound.
Prices of LDPE, our major raw material, have remained at similar levels to those
experienced during the first six months of 2006. Zotefoams continues to invest
in the rolling refurbishment and upgrading of major items of plant and expects
to bring additional refurbished high-pressure capacity on-line late in 2007.
Tax, cash flow and balance sheet
The effective tax charge fell from 30% of pre-tax profit to 10% due to a
reduction in the deferred tax liability reflecting the change in the future
corporation tax rate from 30% to 28% and an adjustment in respect of prior
periods. Both these adjustments were taken in full in the six month period and
their effect is less pronounced over a year
Cash generated from operations was £1.74 million (2006: £1.72 million). This
was after payment of the final instalment of the termination agreement with
Sekisui of €0.70 million in March 2007 (the first half of the termination
payment was paid following the signing of the agreement in March 2006). Capital
expenditure of £1.48 million was at a similar level to the same period last year
and was less than the depreciation charge of £1.65 million (2006: £1.62
million). At 30 June 2007 net debt was £2.52 million (2006: £2.55 million)
giving a strong balance sheet with gearing of 10%.
Board changes
On 23 July 2007 Richard Clowes joined the Board as a non-executive director.
Richard has become a member of the Remuneration, Nominations and Audit
committees. Richard is an engineer and was previously a main Board director of
GKN plc from 2001-2005. He brings a wealth of operational, general management
and international commercial experience to the Board. Chris Ryan, currently a
non-executive director of Zotefoams plc, announced in July 2007 his intention to
resign as a director at the end of 2007 at which point he will have served eight
years as a director of the Company. Although he will remain a member of the
Remuneration, Nominations and Audit committees until his departure, David
Campbell has succeeded Chris as Chairman of the Remuneration Committee. David
Campbell is a non-executive director and the Board regards Richard Clowes, Chris
Ryan and David Campbell as being independent according to the definitions of the
Combined Code on corporate governance.
Dividend
The Directors have declared an interim dividend of 1.5p net per share (2006:
1.5p). The dividend will be paid on 27 September 2007 to shareholders who are on
the Company's register at the close of business on 31 August 2007.
Outlook
The business has performed well in the first six months of 2007 with good profit
growth and improved gross margins. With a significant portion of our revenues
denominated in US dollars and euros we are exposed to fluctuations in exchange
rates. Currency hedging contracts in place for 2007 will mitigate the negative
transactional impact of the recent weakening of these currencies against
sterling, although we choose not to hedge translational impacts and remain
exposed to these. Prices of LDPE, our major raw material, which were high in
early 2006, have remained at high levels for the first six months of 2007 and we
anticipate that these levels could be sustained throughout 2007.
Zotefoams' continued investment in capacity and in the development and marketing
of new products shows the Board's confidence in the business. We see
encouraging signs with many customers and applications for both our polyolefin
and ZOTEK (R) foams. We therefore believe the business is developing well and
we look forward to the future with optimism.
N G Howard
Chairman
6 August 2007
Consolidated income statement
for the six months ended 30 June 2007
Six months ended 30 June 2007
Pre-exceptional Exceptional Post-exceptional
items items items
Note £000 £000 £000
______ ______ ______
Revenue 2 15,645 - 15,645
Cost of sales (11,219) - (11,219)
Gross profit 4,426 - 4,426
Distribution costs (1,184) - (1,184)
Administrative expenses (1,402) - (1,402)
______ ______ ______
Operating profit 1,840 - 1,840
Financial income 525 - 525
Finance costs (563) - (563)
______ ______ ______
Profit before tax 1,802 - 1,802
Taxation 3 (184) - (184)
______ ______ ______
Profit for the period 1,618 - 1,618
______ ______ ______
Attributable to: -
Equity holders of the parent 1,618 - 1,618
______ ______ ______
Earnings per share
Basic (p) 5 4.5
______
Diluted (p) 5 4.4
______
CONTINUED FROM TABLE ABOVE
Six months ended 30 June 2006
Pre-exceptional Exceptional Post-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 1,610 (1,092) 518
Financial income 441 - 441
Finance costs (528) - (528)
______ ______ ______
Profit before tax 1,523 (1,092) 431
Taxation 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
______
CONTINUED FROM TABLE ABOVE
Year ended 31 December 2006
Pre-exceptional Exceptional Post-exceptional
items items items
Note £000 £000 £000
______ ______ ______
Revenue 2 30,052 - 30,052
Cost of sales (22,257) - (22,257)
______ ______ ______
Gross profit 7,795 - 7,795
Distribution costs (2,117) - (2,117)
Administrative expenses (2,842) (1,074) (3,916)
______ ______ ______
Operating profit 2,836 (1,074) 1,762
Financial income 884 - 884
Finance costs (1,047) - (1,047)
______ ______ ______
Profit before tax 2,673 (1,074) 1,599
Taxation 3 (682) 322 (360)
______ ______ ______
Profit for the period 1,991 (752) 1,239
______ ______ ______
Attributable to:
Equity holders of the parent 1,991 (752) 1,239
______ ______ ______
Earnings per share
Basic (p) 5 3.4
______
Diluted (p) 5 3.4
______
Consolidated statement
of recognised income and expense
for the six months ended 30 June 2007
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
Note £000 £000 £000
______ ______ ______
Foreign exchange translation differences on
investment in foreign subsidiary (158) (514) (905)
Effective portion of change in fair value of
cash flow hedges net of recycling (34) 147 163
Actuarial gains on defined benefit schemes 1 - 92 426
Tax on items taken directly to equity 11 (28) (159)
______ ______ ______
Net expense recognised directly in equity (181) (303) (475)
Profit for the period 1,618 301 1,239
______ ______ ______
Total recognised income and expense for the period 1,437 (2) 764
______ ______ ______
Attributable to equity holders of the parent 1,437 (2) 764
______ ______ ______
Consolidated balance sheet
as at 30 June 2007
30 June 30 June 31 December
2007 2006 2006
Note £000 £000 £000
______ ______ ______
Assets
Property, plant and equipment 26,649 27,841 27,018
Deferred tax assets 83 147 99
______ ______ ______
Total non-current assets 26,732 27,988 27,117
Current assets
Inventories 4,144 3,824 3,785
Trade and other receivables 7,073 7,275 6,163
Cash and cash equivalents 117 124 82
______ ______ ______
Total current assets 11,334 11,223 10,030
______ ______ ______
Total assets 38,066 39,211 37,147
______ ______ ______
Equity
Issued share capital 6 (1,820) (1,816) (1,816)
Share premium 6 (13,941) (13,753) (13,753)
Capital redemption reserve 6 (15) (5) (5)
Hedging reserve 6 (50) (68) (84)
Retained earnings 6 (9,363) (8,928) (9,180)
______ ______ ______
Total equity attributable to the equity
holders of the Company (25,189) (24,570) (24,838)
______ ______ ______
Non-current liabilities
Interest-bearing loans and borrowings (500) (900) (700)
Employee benefits (3,931) (4,873) (4,240)
Deferred tax liabilities (2,438) (2,721) (2,764)
______ ______ ______
Total non-current liabilities (6,869) (8,494) (7,704)
______ ______ ______
Current liabilities
Interest-bearing loans and borrowings (400) (400) (400)
Bank overdraft (1,739) (1,373) (411)
Tax payable (585) (330) (307)
Trade and other payables (3,284) (4,044) (3,487)
______ ______ ______
Total current liabilities (6,008) (6,147) (4,605)
______ ______ ______
Total liabilities (12,877) (14,641) (12,309)
______ ______ ______
Total equity and liabilities (38,066) (39,211) (37,147)
______ ______ ______
Consolidated cash flow statement
for the six months ended 30 June 2007
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
£000 £000 £000
______ ______ ______
Cash flows from operating activities
Profit for the period 1,618 301 1,239
Adjustments for:
Depreciation, amortisation and impairment 1,646 1,623 3,248
(Gain)/loss on sale of property, plant and equipment (12) 3 3
Financial income (525) (441) (884)
Finance expense 563 528 1,047
Equity-settled share-based payments 50 40 64
Taxation 184 130 360
______ ______ ______
Operating profit before changes in working capital and
provisions 3,524 2,184 5,077
Increase in trade and other receivables (982) (975) (107)
(Increase)/decrease in inventories (377) 29 51
(Decrease)/increase in trade and other payables (125) 665 314
Decrease in provisions and employee benefits (300) (186) (619)
______ ______ ______
Cash generated from the operations 1,740 1,717 4,716
Interest paid (46) (49) (126)
Tax paid (198) (551) (823)
______ ______ ______
Net cash from operating activities 1,496 1,117 3,767
______ ______ ______
Proceeds on disposal of property, plant and equipment 12 - 3
Interest received 3 4 8
Acquisition of property, plant and equipment (1,479) (1,541) (2,641)
______ ______ ______
Net cash used in investing activities (1,464) (1,537) (2,630)
______ ______ ______
Consolidated cash flow statement
for the six months ended 30 June 2007
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2007 2006 2006
£000 £000 £000
______ ______ ______
Proceeds from the issue of share capital 38 - -
Repurchase of own shares (77) - -
Repayment of borrowings (200) (200) (400)
Dividends paid (1,091) (1,090) (1,634)
______ ______ ______
Net cash used in financing activities (1,330) (1,290) (2,034)
______ ______ ______
Net decrease in cash and cash equivalents (1,298) (1,710) (897)
Cash and cash equivalents at 1 January (329) 432 432
Effect of exchange rate fluctuations on cash held 5 29 136
______ ______ ______
Cash and cash equivalents at the end of period (1,622) (1,249) (329)
______ ______ ______
Cash and cash equivalents comprise cash at bank and short-term highly liquid
investments with a maturity date of less than three months.
Notes to the interim financial statements
for the six months ended 30 June 2007
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 2006.
The comparative figures for the financial year ended 31 December 2006 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.
There were no significant changes to the pension scheme or significant changes
to market conditions during the period year and therefore the Company did not
update its actuarial valuation during this period. The Income Statement charge
is based on the set of assumptions laid out in the consolidated financial
statements for the year ended 31 December 2006. However, no actuarial gains/
losses have been recognised and therefore there is no movement on the Statement
of Recognised Income and Expense for the half year ending 30 June 2007.
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 2007 £000 £000 £000
______ ______ ______
Revenue 15,218 427 15,645
Pre-exceptional operating profit/(loss) 1,994 (154) 1,840
______ ______ ______
High-
performance
Polyolefins polymers Consolidated
Six months ended 30 June 2006 £000 £000 £000
______ ______ ______
Revenue 15,609 266 15,875
Pre-exceptional operating profit/(loss) 1,885 (275) 1,610
______ ______ ______
Exceptional item * (1,092) - (1,092)
______ ______ ______
Post-exceptional operating profit/(loss) 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.
3. Taxation
Six months Six months
ended ended
30 June 30 June
2007 2006
£000 £000
______ ______
Current tax:
UK corporation tax 476 170
Foreign tax - 12
______ ______
476 182
Deferred tax (292) (52)
______ ______
184 130
______ ______
The Group's consolidated effective tax rate for the six months ended 30 June
2007 was 10% (2006: 30%) due to a £0.2m release of deferred tax to reflect the
change in the future corporation tax rate from 30% to 28% and a £0.1m prior year
adjustment in respect of prior periods.
4. Dividends
Six months Six months
ended ended
30 June 30 June
2007 2006
£000 £000
______ ______
Final dividend for the year ended 31 December 2006 of 3.0p (2005: 3.0p)
per share 1,091 1,090
______ ______
The final dividend for the year ended 31 December 2006 was paid on 24 May 2007.
A proposed interim dividend for the year ended 31 December 2007 of 1.5p per
share (2006: 1.5p) was approved by the Board on 26 July 2007 and has not been
included as a liability as at 30 June 2007.
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
2007 2006
£000 £000
______ ______
Earnings
Earnings for the purpose of basic earnings per share being net profit
attributable to equity holders of the parent 1,618 301
Earnings for the purposes of diluted earnings per share 1,618 301
______ ______
Number of shares Number Number
Weighted average number of ordinary shares for the purposes of basic
earnings per share 36,347,325 36,319,924
Effect of dilutive potential ordinary shares:
Share options and Long Term Incentive Plans 701,017 66,041
Weighted average number of ordinary shares for the purposes of diluted
earnings per share 37,048,342 36,385,965
______ ______
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 2007 1,816 13,753 5 (635)
Shares issued 14 188 - -
Shares purchased (10) - 10 -
Total recognised income and expense - - - (158)
Equity-settled share-based payment
transactions net of tax - - - -
Dividends - - - -
______ ______ ______ ______
Balance as at 30 June 2007 1,820 13,941 15 (793)
______ ______ ______ ______
(CONTINUED FROM TABLE ABOVE)
Hedging Retained Total
reserve earnings equity
£000 £000 £000
______ ______ ______
Balance as at 1 January 2007 84 9,815 24,838
Shares issued - (242) (40)
Shares purchased - - -
Total recognised income and expense (34) 1,629 1,437
Equity-settled share-based payment transactions net of tax - 45 45
Dividends - (1,091) (1,091)
______ ______ ______
Balance as at 30 June 2007 50 10,156 25,189
______ ______ ______
During the six month period ended 30 June 2007 431,848 share options vested and
279,014 were exercised at 72.5p. Zotefoams plc repurchased 196,330 ordinary 5p
shares which were subsequently cancelled in the period. Zotefoams plc did not
hold any of its own shares in treasury at 30 June 2007.
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 2007 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 2007.
KPMG Audit Plc
Chartered Accountants
1 Forest Gate
Brighton Road
Crawley RH11 9PT
6 August 2007
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