18th Aug 2005 07:00
Zotefoams PLC18 August 2005 Thursday 18th August 2005 Zotefoams plc Zotefoams plc, the world's leading manufacturer of cross-linked polyolefin blockfoam, today announces its interim results for the six months ended 30 June 2005. Summary • Turnover increased by 6% to £13.7m (2004: £13.0 million) • Sales growth in all major markets • First meaningful sales of ZOTEK(R) fluoropolymers, initiating a range of new high-performance products • Underlying* pre-tax profit up by 9% to £1.0 million (2004: £0.9 million) despite significant increases in polymer and energy costs • Continued development focus on unique high-performance products • Strong balance sheet with net debt of £1.8 million and 8% gearing • EPS* of 2.4p, increased by 41% (2004: 1.7p) • Interim dividend unchanged at 1.5p per share (2004: 1.5p) * Excluding legal, advisory and other costs of £206,000 in respect of apreliminary approach for the share capital of the Company that was announced on14 January 2005, which are included in administrative expenses for the period. Commenting on the results, Bill Fairservice, Chairman, said: "With strong cash flow from operating activities, a low level of gearing,continuing sales growth and a promising development portfolio we are wellpositioned for the future despite the challenges posed by price rises on ourcost base." Enquiries: Zotefoams plc 020 8664 1600David Stirling, Managing DirectorClifford Hurst, Finance Director Financial Dynamics 020 7831 3113Deborah Scott/Sarah Macleod About us Zotefoams plc is the world's leading manufacturer of cross-linked polyolefinblock foams. Its products are used in a wide range of markets, including sportsand leisure, packaging, transport, healthcare, toys, building, marine and themilitary. Through a unique production process, Zotefoams produces foams which havecontrollable properties and are of a strength, consistency, quality and puritysuperior to foams produced by other methods. Zotefoams' strategy is to create sustained profit growth by expanding its salesinternationally and by broadening its potential market with new unique products. Chairman's statement Overview On 14 January 2005 the Board announced that it had received a very preliminaryapproach that may or may not lead to an offer being made for the entire issuedshare capital of Zotefoams. On 8 March and 28 April 2005 the Board confirmedthat it remained in discussion with a number of parties. These discussions arecontinuing. Shareholders should however note that all the indicative offer termsthat have been received are at levels below the closing mid market share priceof 87.5 pence on 17 August 2005. There can be no certainty that an offer will bemade, nor as to the terms on which any offer might be made. This announcementhas not been made with the agreement or approval of the potential offerors. Inthe first six months of 2005, Zotefoams incurred legal, advisory and other costsof £206,000 in respect of this approach which are included in administrativeexpenses for the period and described below as "bid costs". Results These Interim 2005 results represent the first time adoption of InternationalFinancial Reporting Standards ('IFRS'). 2004 comparatives have been restatedaccordingly. Full details of the transition to IFRS can be found in theAppendix. Profit before tax for the six months ended 30 June 2005 was £0.75 million.However, excluding bid costs profit before tax was £0.95 million, a 9% increasecompared to the first half of 2004 (2004: £0.87 million). This increase wasachieved on sales growth of 6% in an environment of significantly increasedinput costs. Operational improvements and price rises in all markets, along witha surcharge linked to raw material prices, helped to maintain gross margins at22.4% (2004:23.0%) despite significant rises in material and energy costs. The effective tax charge for the period was 4% (2004: 31%) with a £0.12 milliontax credit due to the partial recognition of US tax losses as a deferred taxasset. Markets Sales grew 6% to £13.69 million (2004: £12.95 million) despite a 2% reduction involumes, reflecting better product mix and price increases. The first meaningfulsales of ZOTEK (R) fluoropolymer foams were made in the period, initiating whatwe believe will grow to become a significant range of new high performanceproducts. Sales for these products were £0.16 million (2004:Nil) all of whichwere into the aviation market in North America. In our major product line,polyolefin foams, sales grew 8% in local currency in North America which, inline with our expectations, was the strongest performance of any of our majormarkets. In the more mature markets of the UK and continental Europe, growth was2% and 4% respectively. In Asia and the Middle East we grew at a more rapid ratewith sales of £0.38 million (2004:£0.26 million) as we continue to penetratethese markets from a low base level. Product Development We continue to exploit our unique manufacturing technology for high performancefoams. Our short term focus is to extend the range of fluoropolymer foamsoffered, with tailored offerings to meet specific market needs. We willcontinue developments at pilot plant scale with polyamide (nylon) and siliconefoams with a view to launch commercially during the first half of 2006. We havetherefore increased the sales and marketing resource for fluoropolymer foams andexpect this additional investment to continue as further opportunities aresought. In the longer term we believe there are further opportunities with othermaterials and technology variants which are currently at laboratory scale. Operations Improvements in operational performance, particularly in North America, werenecessary to offset increases in the purchase price of raw materials and energy.The average price of LDPE, our major raw material, increased by 42% comparedwith the first six months of 2004 and there were significant price rises in mostother polymer costs. Polymer and energy price rises increased our input costs inthe period under review by £0.98 million over 2004 levels. Cash Flow and Balance Sheet I am pleased to report that, after bid costs, £1.76 million cash was generatedfrom operations (2004:£1.99 million). Zotefoams incurred £17.4 million ofcapital expenditure from 2000 until 2002, primarily on our facility in Kentucky,USA, and rebuilding parts of the Croydon, UK site after a fire in 2000. Largelydue to this expenditure depreciation of £1.69 million was significantly inexcess of capital expenditure of £0.42 million. After payment of dividends of£1.09 million (2004: £0.73 million) our balance sheet remains strong with netdebt of £1.83 million (2004 year end: £1.66 million) and gearing of 8% (2004year end: 7%). Pensions In common with many UK businesses Zotefoams offers a defined benefit finalsalary pension scheme. This scheme was closed to new entrants in 2001. Thetri-annual actuarial valuation of this scheme as at 5 April 2005 has now beenprepared. This showed a deficit on an ongoing valuation basis of £3.84 million.In view of the size of the deficit and the ongoing risk of offering a definedbenefit scheme the Board's intention is to discuss with the scheme trustees andemployee members structural changes to the scheme such as closing it to futureaccrual of benefits. Assuming closure of the scheme to future accrual ofbenefits the deficit in this scheme is approximately £2.5 million. Followingthis course of action could involve a significant one-off payment into thescheme by Zotefoams to reduce this deficit. Under IAS19 there is an estimateddeficit of £7.57 million, gross of deferred tax, in respect of this scheme as at30 June 2005. This is shown as a liability in the balance sheet. Earnings and Dividend Earnings per share for the six months ended 30 June 2005, were 2.0p. However,excluding bid costs, earnings per share were 2.4p compared to 1.7p for the sixmonths ended 30 June 2004. The Directors have declared an unchanged interimdividend of 1.5p net per share (2004: 1.5p). The dividend will be paid on 30September 2005 to shareholders who are on the Company's register at the close ofbusiness on 2 September 2005. Outlook In order to provide certainty on the price of energy, which is a significantpart of our cost base, Zotefoams placed a 12 months fixed price contract for UKenergy in November 2004. While we have successfully managed the impact of higherenergy prices through efficiency measures and selling price increases, weanticipate that when these contracts expire higher energy prices will adverselyimpact our cost base in 2006. Additionally, although polymer prices havedeclined from the very high levels experienced during early 2005 there are nowsigns that prices are likely to rise from current levels. However, on average weexpect the prices in the second half of the year to be lower than that for thefirst six months. Sales of our unique ZOTEK (R) fluoropolymer foams are growing strongly, albeitfrom a low base, and orders received for shipment in the second half of 2005 arealready more than 150% of the sales achieved in the first six months. Asmentioned earlier we believe other developments in our technical portfolio arevery promising, however, these are not expected to start generating revenuesuntil 2006. Overall we anticipate continuing sales growth in the second half with good cashgeneration from operating activities. Capital expenditure is planned to increasein the second half as we begin our rolling programme of upgrading some of thehigh-pressure vessels in our Croydon facility. The expenditure associated withthis programme is anticipated to be well within our current level ofdepreciation for the next few years. With strong cash flow from operating activities, a low level of gearing,continuing sales growth and a promising development portfolio we are wellpositioned for the future despite the challenges posed by price rises on ourcost base. W H FairserviceChairman17 August 2005 Consolidated income statementSix months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Note £000 £000 £000 ______ ______ ______Revenue 3 13,691 12,950 25,176Cost of sales (10,620) (9,966) (19,652) ______ ______ ______Gross profit 3,071 2,984 5,524Distribution costs (936) (939) (1,869)Administrative expenses (including bid costs of (1,323) (1,065) (2,121)£206,000) ______ ______ ______Operating profit before finance costs 812 980 1,534Financial income - interest 13 - -Finance costs (79) (107) (225) ______ ______ ______Profit before tax 746 873 1,309Income tax expense 4 (29) (271) (139) ______ ______ ______Profit for the period 717 602 1,170 ______ ______ ______Attributable to:Equity holders of the parent 717 602 1,170 ______ ______ ______Earnings per shareBasic (p) 6 2.0 1.7 3.2 ______ ______ ______Diluted (p) 6 2.0 1.7 3.2 ______ ______ ______ Consolidated statement of recognised income and expenseSix months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £000 £000 £000 ______ ______ ______Gain/(losses) on investment in foreign subsidiary 487 (108) (576)Actuarial (losses)/gains on defined benefit schemes (368) 132 264Tax on items taken directly to equity 110 (40) (79) ______ ______ ______Net income/(expense) recognised directly in equity 229 (16) (391)Profit for the period 717 602 1,170 ______ ______ ______Total recognised income and expense for the period 946 586 779 ______ ______ ______Attributable to equity holders of the parent 946 586 779 ______ ______ ______ Consolidated balance sheet30 June 2005 30 June 30 June 31 December 2005 2004 2004 Note £000 £000 £000 ______ ______ ______AssetsProperty, plant and equipment 28,883 31,170 29,795Deferred tax assets 149 - - ______ ______ ______Total non-current assets 29,032 31,170 29,795Current assetsInventories 3,698 3,177 3,126Trade and other receivables 6,581 6,378 5,675Cash and cash equivalents 137 240 298 ______ ______ ______Total current assets 10,416 9,795 9,099 ______ ______ ______Total assets 39,448 40,965 38,894 ______ ______ ______ EquityIssued share capital 7 (1,814) (1,813) (1,813)Share premium 7 (13,727) (13,707) (13,707)Capital redemption reserve (5) (5) (5)Share option reserve (83) (22) (54)Other reserves 89 108 576Retained earnings (8,418) (8,933) (9,050) ______ ______ ______Total equity (23,958) (24,372) (24,053) ______ ______ ______LiabilitiesInterest-bearing loans and borrowings (1,300) - (1,500)Employee benefits (7,570) (7,336) (7,192)Deferred tax liabilities (2,194) (2,612) (2,585) ______ ______ ______Total non-current liabilities (11,064) (9,948) (11,277)Bank overdraft (265) (3,006) -Interest-bearing loans and borrowings (397) (503) (457)Income tax payable (611) (919) (577)Trade and other payables (3,153) (2,217) (2,530) ______ ______ ______Total current liabilities (4,426) (6,645) (3,564) ______ ______ ______Total liabilities (15,490) (16,593) (14,841) ______ ______ ______Total equity and liabilities (39,448) (40,965) (38,894) ______ ______ ______ Consolidated cash flow statementSix months ended 30 June 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Note £000 £000 £000 ______ ______ ______Net cash from operating activities 8 1,234 1,615 4,487 ______ ______ ______Cash flow from investing activitiesProceeds on disposal of property, plant and - - 1equipmentInterest received 13 - -Acquisition of property, plant and equipment (415) (603) (1,331) ______ ______ ______Net cash used in investing activities (402) (603) (1,330) ______ ______ ______Cash flow from financing activitiesRepayment of borrowings (200) (381) (851)New borrowings - - 2,000Payment of finance lease liabilities (60) (60) (119)Dividends paid (1,088) (725) (1,269) ______ ______ ______Net cash used in financing activities (1,348) (1,166) (239) ______ ______ ______Net (decrease)/increase in cash and cash (516) (154) 2,918equivalentsCash and cash equivalents at beginning of period 298 (2,616) (2,616)Effect of exchange rate fluctuations on cash 90 4 (4)heldCash and cash equivalents at the end of period (128) (2,766) 298 ______ ______ ______ Cash and cash equivalents comprise cash at bank and short-term highly liquidinvestments with a maturity date of less than three months. Notes to the interim financial statementsSix months ended 30 June 2005 1 General information The comparative figures for the year ended 31 December 2004 are not theCompany's statutory accounts for that financial year. Those accounts, which wereprepared under UK Generally Accepted Accounting Practices, have been reported onby the Company's auditor and delivered to the Registrar of Companies. Theauditor's report was unqualified and did not contain statements under section237(2) or (3) of the Companies Act 1985. 2 Accounting policies The consolidated interim financial statements of the Group comprise the Companyand its subsidiaries. European Union (EU) law (IAS regulation DC1606/2002)requires that the next annual consolidated financial statements of the Group,for the year ending 31 December 2005, be prepared in accordance withInternational Financial Reporting Standards (IFRS) adopted for use in the EU.This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRS in issue that either areendorsed by the EU and effective at 30 June 2005 or are expected to be endorsedand effective at 31 December 2005, the Group's first annual reporting date atwhich it is required to use adopted IFRS. Based on these adopted and unadoptedIFRS the Directors have made assumptions about the accounting policies expectedto be applied, which are as set out below, when the first annual IFRS financialstatements are prepared for the year ending 31 December 2005. In particular, the Directors have assumed that the following IFRS issued by theInternational Accounting Standards Board will be adopted by the EU in sufficienttime that it will be available for use in the annual IFRS financial statementsfor the year ending 31 December 2005: Amendment to International Accounting Standard IAS 19 Employee Benefits:Actuarial Gains and Losses, Group Plans and Disclosures. In addition, the adopted IFRS that will be effective in the annual financialstatements for the year ending 31 December 2005 are still subject to change andto additional interpretations and therefore cannot be determined with completecertainty. Accordingly, the accounting policies for that annual period will bedetermined finally only when the annual financial statements are prepared forthe year ending 31 December 2005. a) Statement of compliance An explanation of how the transition to IFRS has affected the reported financialposition, financial performance, and cash flows of the Group is provided in theappendix. This note includes reconciliations of equity and the income statementfor comparative periods reported under UK GAAP (previous GAAP) to those reportedfor those periods under IFRS. b) Basis of preparation The financial statements are presented in sterling, rounded to the nearestthousand unless otherwise stated. They are prepared on the historical cost basisexcept that derivative financial instruments are stated at their fair value. The preparation of the condensed consolidated interim statements in accordancewith IFRS resulted in changes to the accounting policies as compared to the mostrecent annual financial statements prepared under the previous GAAP. Theaccounting policies set out below have been applied consistently to all periodspresented in these condensed consolidated financial statements. They also havebeen applied in preparing an opening IFRS balance sheet as at 1 January 2004 forthe purpose of the transition to IFRS, as required by IFRS1 except, in respectof foreign currency financial hedging where the Company has taken advantage ofthe exemption in IFRS1 not to restate comparative information for 2004. Theimpact of the transition from previous GAAP to IFRS is explained in theappendix. c) Basis of consolidation i) Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when theCompany has the power, directly or indirectly, to govern the financial andoperating policies of an entity so as to obtain benefits from its activities. Inassessing control, potential voting rights that presently are exercisable orconvertible are taken into account. ii) Transactions eliminated on consolidation Intragroup balances, and any unrealised gains and losses or income and expensesarising from intragroup transactions are eliminated in preparing the condensedinterim financial statements. Unrealised gains arising from transactions withassociates and jointly controlled entities are eliminated to the extent of theGroup's interest in the entity. Unrealised losses are eliminated in the same wayas unrealised gains, but only to the extent that there is no evidence ofimpairment. d) Foreign currency i) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rateprevailing at the time of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balancesheet date are translated to sterling at the foreign exchange rate ruling atthat date. Foreign exchange differences arising on translation are recognised inprofit and loss. Non-monetary assets and liabilities that are measured in termsof historical cost in a foreign currency are translated using the exchange rateat the date of the transaction. ii) Financial statements of foreign operations The assets and liabilities of foreign operations, including fair valueadjustments arising on consolidation, generally are translated to sterling atforeign exchange rates ruling at the balance sheet date. The revenues andexpenses of foreign operations generally are translated to sterling at theaverage rate of exchange ruling during the year. Foreign exchange differencesarising on retranslation are recognised directly in a separate component ofequity. e) Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to foreignexchange risks arising from operational, financing and investment activities. Inaccordance with its treasury policy, the Group does not hold or issue derivativefinancial instruments for trading purposes. However, derivatives that do notqualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at cost. Subsequent toinitial recognition, derivative finance instruments are stated at fair value.Where derivatives qualify for hedge accounting, recognition of any resultantgain or loss depends on the nature of the item being hedged (see accountingpolicy f). The fair value of forward exchange contracts is their quoted market price at thebalance sheet date, being the present value of the quoted forward price. f) Cash flow hedging When a derivative financial instrument is designated as a hedge of thevariability in cash flows of a recognised asset or liability, or a highlyprobable forecasted transaction, the effective part of any gain or loss on thederivative financial instrument is recognised directly in equity. If a hedge ofa forecasted transaction subsequently results in the recognition of a financialasset or a financial liability, then the associated gains or losses that wererecognised directly in equity are reclassified into the income statement in thesame period or periods during which the asset acquired or liability assumedaffects the income statement (i.e., when interest income or expense isrecognised). The ineffective part of any gain or loss is recognised immediately in the incomestatement. When a hedging instrument expires or is sold, terminated or exercised, or theentity revokes designation of the hedge relationship but the hedged forecasttransaction is still expected to occur, the cumulative gain or loss at thatpoint remains in equity and is recognised in accordance with the above policywhen the transaction occurs. If the hedged transaction is no longer expected totake place, then the cumulative unrealised gain or loss recognised in equity isrecognised immediately in the income statement. g) Property, plant and equipment i) Owned assets Items of property, plant and equipment are stated at cost or deemed cost lessaccumulated depreciation and impairment losses (see accounting policy l). When parts of an item of property, plant and equipment have different usefullives, those components are accounted for as separate items of property, plantand equipment. ii) Leased assets Leases in terms of which the Group assumes substantially all of the risks andrewards of ownership are classified as finance leases. Lease payments areaccounted for as described in accounting policy r. iii) Depreciation Depreciation is charged to the income statement on a straight line basis overthe estimated useful lives of each part of the item of property, plant andequipment. Land is not depreciated. The estimated useful lives are as follows: Buildings 20 yearsPlant and equipment 5-15 yearsComputer equipment and vehicles 3-5 years h) Intangible assets i) Research and development Expenditure on research and development activities undertaken with the prospectof gaining new scientific or technical knowledge and understanding, isrecognised in the income statement as an expense incurred. Expenditure ondevelopment activities, whereby research findings are applied to a plan ordesign for the production of new or substantially improved products andprocesses, is capitalised if the product or process is technically andcommercially feasible and the Group has sufficient resources to completedevelopment. i) Trade and other receivables Trade and other receivables are stated at their cost less impairment losses (seeaccounting policy l) j) Inventories Inventories are stated at the lower of cost and net realisable value. Netrealisable value is the estimated selling price in the ordinary course ofbusiness, less the estimated costs of completing and selling expenses. In determining the cost of raw materials, consumables and goods purchased forresale, the weighted average purchase price is used. For work in progress andfinished goods manufactured by the group, cost is taken as production cost,which includes an appropriate proportion of attributable overheads. k) Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits with anoriginal maturity of three months or less. Bank overdrafts that are repayable ondemand and form an integral part of the Group's cash management are included asa component of cash and cash equivalents for the purposes of the statement ofcash flows. l) Impairment The carrying amounts of the Group's assets, other than inventories (seeaccounting policy j), employee benefits (see accounting policy o) and deferredtax assets (see accounting policy s), are reviewed at each balance sheet datewhere there is an indication that the asset may be impaired. If any suchindication exists, the asset's recoverable amount is estimated (see below). An impairment loss is recognised whenever the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement. i) Calculation of recoverable amount The recoverable amount of assets is the greater of their net selling price andvalue in use. In assessing value in use, the estimated future cash flows arediscounted to their present value using a pre-tax discount rate that reflectscurrent market assessments of the time value of money and the risks specific tothe asset. For an asset that does not generate largely independent cash inflows,the recoverable amount is determined for the cash-generating unit to which theasset belongs. ii) Reversals of impairment An impairment loss is reversed if there has been a change in the estimates usedto determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carryingamount does not exceed the carrying amount that would have been determined, netof depreciation or amortisation, if no impairment loss had been recognised. m) Share capital i) Repurchase of share capital When share capital recognised as equity is repurchased, the amount of theconsideration paid, including directly attributable costs, is recognised as achange in equity. Repurchased shares that are not subsequently cancelled areclassified as treasury shares and presented as a deduction from total equity. ii) Dividends Dividends are recognised as a liability in the period in which they aredeclared. n) Interest bearing borrowings Subsequent to initial recognition, interest-bearing borrowings are stated atamortised cost with any differences between cost and redemption values beingrecognised in the income statement over the period of the borrowings on aneffective interest basis where material. o) Employee benefits i) Defined contribution plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement as incurred. ii) Defined benefits plans The Group's net obligation in respect of defined benefit post employment plans,including pension plans, is calculated separately for each plan by estimatingthe amount of future benefit that the employees have earned in return for theirservice in the current and prior periods. That benefit is discounted todetermine its present value, and the fair value of any plan assets is deducted.The discount rate is the yield at the balance sheet date on AA credit ratedbonds that have maturity dates approximating the terms of the Group'sobligations. The calculation is performed by a qualified actuary using theprojected unit credit method. All actuarial gains and losses at 1 January 2004, the date of transition toIFRS, were recognised. The Group recognises the actuarial gains and losses thatarise subsequent to 1 January 2004 through the Statement of Recognised Incomeand Expenditure. iii) Share based payment transactions The share option programme allows Group employees to acquire shares of theCompany. The fair value of options granted is recognised as an employee expensewith a corresponding increase in equity. The fair value is measured at grantdate and spread over the period during which the employee becomesunconditionally entitled to the options. The fair value of the options grantedis measured using a Monte Carlo simulation method taking into account the termsand conditions upon which the options were granted. p) Trade and other payables Trade and other payables are stated at cost. q) Revenue Revenue from the sale of goods is recognised in the income statement at thepoint of despatch when significant risks and rewards of ownership is deemed tohave been transferred to the buyer. r) Expenses i) Operating lease payments Payments made under operating leases are recognised in the income statement on astraight-line basis over the term of the lease. Lease incentives received arerecognised in the income statement as an integral part of the total leaseexpenses. ii) Finance lease payments The finance charge, where material, is allocated to each period during the leaseterm so as to produce a constant periodic rate of interest on the remainingbalance of the liability. s) Income tax Income tax on the income statement for the periods presented comprises currentand deferred tax. Income tax is recognised in the income statement except to theextent that it relates to items recognised directly in equity, in which case itis recognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantially enacted at the balance sheet date, andany adjustments to the tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing fortemporary differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. Thefollowing temporary differences are not provided for: the initial recognition ofassets or liabilities that affect neither accounting nor taxable profit, anddifferences relating to investments in subsidiaries to the extent that they willprobably not reverse in the foreseeable future. The amount of deferred taxprovided is based on the expected manner of realisation or settlement of thecarrying amount of assets and liabilities, using tax rates enacted orsubstantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Deferred tax assets are reduced to the extent that it is no longerprobable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends arerecognised at the same time as the liability to pay the related dividend. Information as to the calculation of income tax on the income statement for theinterim periods presented is included in note 4. t) Segmental reporting A segment is a distinguishable component of the Group that is engaged either inproviding products or services (business segment), or in providing products orservices within a particular economic environment (geographical segment), whichis subject to risks and rewards that are different from those of other segments. 3 Business segments The Group manufactures and sells high-performance foams for specialist marketsworldwide. These fall into two main business segments best categorised by theirconstituent raw materials. - Polyolefins: these foams are made from olefinic homopolymer andcopolymer resin. The most common resin used is polyethylene. - High performance polymers: these foams exhibit high performance oncertain key properties, such as improved chemical, flammability or temperatureperformance, due to the resins on which they are based. Turnover in the segmentis currently derived from our ZOTEK (R) F foams made from PVDF fluoropolymer.Other polymers being assessed in development include polyamide (nylon) andsilicone. Due to our unique manufacturing technology Zotefoams can produce polyolefinfoams with superior performance to other manufacturers. However, our strategy isto use the capabilities of our technology to produce foams from other materialsas well as polyolefins. The development of foams from high-performance polymersis currently in its early stages with development and marketing costs exceedingrevenues. High performance Polyolefins polymers ConsolidatedSix months ended 30 June 2005 £000 £000 £000 ______ ______ ______Revenue 13,528 163 13,691Result 1,215 (197) 1,018 ______ ______ ______Unallocated corporate expenses - bid costs* (206)Financial income - interest 13Finance costs (79) ______Profit before tax 746 ______Income tax expense (29) ______Profit for the period 717 ______ * Bid costs relate to legal, advisory and other costs incurred in respect of apreliminary approach for the share capital of the Company which was announced inJanuary 2005. High performance Polyolefins polymers ConsolidatedSix months ended 30 June 2004 £000 £000 £000 ______ ______ ______Revenue 12,950 - 12,950Profit from operations 1,169 (189) 980 ______ ______ ______Finance costs (107) ______Profit before tax 873 ______Income tax expense (271) ______Profit for the period 602 ______ 4 Tax Six months Six months ended ended 30 June 30 June 2005 2004 £000 £000 ______ ______Current tax:UK corporation tax 465 771Foreign tax (6) 13 ______ ______ 459 784Deferred tax (430) (513) ______ ______ 29 271 ______ ______ Income tax for the interim period is charged at 62% (2004: 90%), representingthe best estimate of the weighted average annual income tax rate expected forthe full financial year. The high income tax rate is primarily because taxableprofits are higher than accounting profits due to the excess of depreciationover capital allowances. This is compensated for by a release of deferred tax.The Group has $6.2 million tax losses carried forward in the USA. These taxlosses at a 35% tax rate and current exchange rates have a value of £1.2million. The Group has recognised £120,000 of those tax losses as a deferred taxasset representing what the Board believe is a prudent estimate of the expectedUS tax loss utilisation in the near future. The effect of the release of deferred tax due to the excess of depreciation overcapital allowances, the partial recognition of US tax losses, R & D taxallowances and adjustments in respect of prior periods is to reduce theeffective tax rate to 4% (2004: 31%). 5 Dividends Six months Six months ended ended 30 June 30 June 2005 2004 £000 £000 ______ ______Final dividend for the year ended 31 December 2004 of 3.0p (2003: 2.0p) per 1,087 725share ______ ______ The final dividend for the year ended 31 December 2004 was paid on 24 May 2005. A proposed interim dividend for the year ended 31 December 2005 of 1.5p pershare (2004: 1.5p) was approved by the Board on 17 August 2005 and has not beenincluded as a liability as at 30 June 2005. 6 Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: Six months Six months ended ended 30 June 30 June 2005 2004 £000 £000 ______ ______EarningsEarnings for the purpose of basic earnings per share being net profit 717 602attributable to equity holders of the parentEarnings for the purposes of diluted earnings per share 717 602 ______ ______ Number of shares Number NumberWeighted average number of ordinary shares for the purposes of basic 36,260,296 36,255,772earnings per share ______ ______ Effect of dilutive potential ordinary shares:Share options 81,600 31,288Weighted average number of ordinary shares for the purposes of diluted 36,341,896 36,287,060earnings per share ______ ______ 7 Share capital Six months Six months ended ended 30 June 30 June 2005 2004 £000 £000 ______ ______Opening issued share capital 1,813 1,813Shares issued in period 1 - ______ ______Closing issued share capital 1,814 1,813 Opening share premium 13,707 13,707Premium on shares issued in period 20 - ______ ______Closing share premium 13,727 13,707 ______ ______ 8 Notes to the cash flow statement Six months Six months Year ended ended ended 31 December 30 June 2005 30 June 2004 2004 £000 £000 £000 ______ ______ ______Profit for the period 717 602 1,170Adjustments for:Depreciation 1,693 1,658 3,371Loss on sale of property, plant and equipment 5 - 23Financial income - interest (13) - -Interest expense 79 107 225Equity-settled share-based payment expenses 29 13 46Income tax expense 29 271 139 ______ ______ ______Operating cash flow before changes in working capital and 2,539 2,651 4,974provisions(Increase)/decrease in trade and other receivables (797) (523) 136(Increase)/decrease in inventories (554) 4 (13)Increase/(decrease) in trade and other payables 559 (126) 188Increase/(decrease) in provisions and employee benefits 10 (12) (24) ______ ______ ______Cash generated from operations 1,757 1,994 5,261Interest paid (94) (136) (254)Income taxes paid (429) (243) (520) ______ ______ ______Net cash from operating activities 1,234 1,615 4,487 ______ ______ ______ 9 Retirement benefit schemes The Company has adopted IAS 19 as at 1 January 2004. An estimated valuation forthe interim in 2005 has been performed in conjunction with the Company'sactuaries based on the IAS 19 valuation at 31 December 2004. Appendix: Explanation of transition to IFRS The reconciliations of equity at 30 June 2004 and the reconciliation of profitfor the six months ended 30 June 2004 have been included below to enable acomparison of the 2005 interim figures with those published in the correspondingperiod of the previous financial year. Reconciliation of equity at 30 June 2004 Reclassify Provide translation Previous Remove deferred tax differences GAAP proposed on rolled to other 30 June 04 dividend over gains reserves £000 £000 £000 £000 ______ ______ ______ ______AssetsProperty, plantand equipment 31,170 - - - ______ ______ ______ ______Total non-current assets 31,170 - - -Current assetsInventories 3,177 - - -Trade and other receivables 6,378 - - -Cash and cash equivalents 240 - - - ______ ______ ______ ______Total current assets 9,795 - - - ______ ______ ______ ______Total assets 40,965 - - - ______ ______ ______ ______EquityIssued capital (1,813) - - -Share premium (13,707) - - -Capital redemption reserve (5) - - -Share option reserve - - - -Other reserves - - - 108Retained earnings (14,268) (544) 830 (108) ______ ______ ______ ______Total equity (29,793) (544) 830 - ______ ______ ______ ______LiabilitiesEmployee benefits - - - -Deferred tax (liabilities)/assets (3,983) - (830) - ______ ______ ______ ______Total non-currentLiabilities (3,983) - (830) -Bank overdraft (3,006) - - -Interest-bearing loansRelated Shares:
Zotefoams