8th Aug 2006 07:00
Zotefoams PLC08 August 2006 Zotefoams plc Interim Results for the Six Months Ended 30 June 2006 8 August 2006 -- Zotefoams plc, the world's leading manufacturer of cross-linkedpolyolefin block foam, today announces its interim results for the six monthsended 30 June 2006. Summary • Revenue of £15.88 million (2005: £13.69 million), up 16% • Sales growth in all major markets • Direct sales force expanded following the termination of commercial relationships with the Sekisui Group • Development completed of a 'world-first' nylon foam • Profit before tax excluding exceptional items of £1.52 million (2005: £0.95 million), up 60%* • Gross margin of 26.8% (2005: 22.4%) • Net debt of £2.55 million as at 30 June 2006 (2005: £1.83 million), with accelerated capital refurbishment and upgrade programme • Gearing at 30 June 2006 of 10% (2005: 8%) • EPS excluding exceptional items were 2.9p (2005: 2.5p), up 16% • Interim dividend maintained at 1.5p per share (2005: 1.5p) *Profit before tax of £0.4 million (2005: £0.7 million) includes an exceptionalitem of £1.09 million for costs incurred in terminating commercial relationshipswith the Sekisui Group. Bill Fairservice, Chairman of Zotefoams, commented: "The year has started well for Zotefoams, with strong revenue and profit growthachieved in the first half. Rising energy and raw materials prices have beenrecovered through selling price increases. We continue to make good progresswith our polyolefin foams and the development of our high performance foams,although the timing of revenues from these new products can be difficult topredict. We anticipate further growth in the second half of the year albeit atlower rates due to the seasonality of our business, and believe theopportunities open to us provide encouraging prospects for the future." Enquiries: Zotefoams plc Tel Today: 020 7831 3113David Stirling, Managing Director Thereafter: 020 8664 1600Clifford Hurst, Finance Director Financial Dynamics Tel: 020 7831 3113Sarah 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 Bill Fairservice Results I am pleased to announce a good set of results for the business. Revenue for thesix months ended 30 June 2006 was £15.88 million (2005: £13.69 million), anincrease of 16% on the previous year. Profit before tax was £0.43 million (2005:£0.75 million). However, excluding exceptional items, profit before tax was£1.52 million (2005: £0.95 million) a 60% increase over the first half of 2005.Zotefoams continues to operate in an environment of increasing energy and rawmaterials prices and our selling prices to customers have increased to recoverthese costs. Gross margins increased to 26.8% (2005: 22.4%) with increased salesvolumes improving asset utilisation and reduced commission payments. Basicearnings per share excluding exceptional items were 2.9p (2005: 2.5p) anincrease of 16% after an abnormally low tax charge in 2005 primarily due to thepartial recognition of the benefit of US tax losses in that year. Includingexceptional items basic earnings per share were 0.8p (2005: 2.0p). Revenue Overall sales growth of 16% was achieved with growth in all major markets.Revenue from polyolefin foams increased 15% overall with a 3% increase in UK,21% increase in Continental Europe and 23% increase in North America. Revenuefrom polyolefin foams in the other regions declined slightly and sales of ZOTEK(R) fluoropolymer high-performance foams increased 63% albeit both fromrelatively low base levels. In all markets our approach of working on end-usermarket development as well as support of our direct customers in specific marketsegments has proved successful and we plan to continue to invest our marketingresources in this manner. Exceptional items On 21 March 2006 we announced the termination of the Group's commercialrelationships with the Sekisui Chemical Company Ltd and subsidiaries (the "Sekisui Group") which sold Zotefoams' polyolefin products as an agent inContinental Europe and North America and as a distributor in Asia. Thetermination of this relationship marks a significant change in Zotefoams'approach to our customers in Europe and, on a smaller scale, in Asia. Ourintention is to employ a direct sales organisation across all product linesworldwide. We expect the termination cost of £1.09 million, which is shown as anexceptional charge, and the ongoing costs of establishing and operating oursales team will be more than offset by the end of 2007 through a reduction incommissions payable to the Sekisui Group. Polyolefin foams Following the termination of the alliance with the Sekisui Group we haveincreased resource in both our customer service and sales departments to offerimproved levels of service and support to existing and potential new customersand to exploit the opportunities offered by direct access to our major markets.For the first time this includes a directly employed sales representative inAsia to access the niche opportunities which we believe exist in thisfast-growing market. High performance foams Our product strategy exploits our unique manufacturing technology in thedevelopment of high performance foams. In January 2006 we launched our secondZOTEK(R) F fluoropolymer foam offering improved chemical resistance and highertemperature performance and we are currently working on a number of excitingprojects with this material. In addition we have completed the development of a"world first" polyamide (nylon) foam which offers excellent high-temperatureperformance and is resistant to many chemicals, including hydrocarbons. I amdelighted that this product is now ready to launch and we are in the process ofintroducing it across our customer base. With both these product lines we areinvesting additional resource in technical and, increasingly, market developmentto drive future growth. Operations We have experienced good volume growth since the second half of 2005 and, aspublished in our Annual Report for 2005, we are accelerating our capitalrefurbishment program for the high-pressure autoclaves at our Croydon site. InJuly 2006 one major vessel was re-certified with its capability enhanced toallow operation at higher temperatures. The upgrade of the next vessel in thisrolling program is scheduled to begin in the third quarter of this year. Cash flow and balance sheet Net debt increased from £1.83 million in June 2005 to £2.55 million at the endof June 2006. This was primarily the result of the increased capital expenditurereferred to above, with expenditure of £1.54 million just under depreciation of£1.62 million. However, the balance sheet remains strong with gearing of 10%. Board changes On 31 March Tony Eldrett, the Company's Operations and Projects Director,retired from the Board. Tony is 61 years old and has been a Director of theCompany since 1992. He remains with Zotefoams retaining his current operationalresponsibilities. On behalf of everyone involved with Zotefoams I would like tothank Tony for his contribution to the Board over the years. Dividend The Directors have declared an interim dividend of 1.5p net per share (2005:1.5p). The dividend will be paid on 28 September 2006 to shareholders who are onthe Company's register at the close of business on 1 September 2006. Outlook The year has started well for our business with strong revenue and profit growthachieved in the first half. We anticipate further progress in the second half ofthe year, although growth rates are likely to be lower than the first half yeardue to the expected re-establishment of the normal seasonal patterns of ourbusiness. With a significant portion of our revenues denominated in US dollarsand euros we are naturally exposed to fluctuations in exchange rates, althoughcurrency hedging contracts in place for 2006 will mitigate the negativetransactional impact of the recent weakening of these currencies againststerling. The timing of revenue from our high performance foams is difficult topredict. However, we are working on a number of major opportunities which webelieve have a good chance of success. The continued growth in polyolefin foamsand the development of our high performance polymers business provideencouraging prospects for the future. Prices of LDPE, our major raw material, have been at historically high levelsfor the first six months and we anticipate that these levels will be sustainedthroughout 2006. Energy is also a major cost and, as part of our risk managementstrategy, we have fixed price contracts in place through to November 2006 and ata higher level from December 2006 to November 2007. We are confident the business can deal with the continued pressure of risingcosts. In addition there are good prospects in many products and markets. Wetherefore look forward to the future with optimism. W H FairserviceChairman7 August 2006 Consolidated income statementfor the six months ended 30 June 2006 Six months ended 30 June 2006 Pre- Post- exceptional Exceptional exceptional items items items Note £000 £000 £000 ______ ______ ______Revenue 2 15,875 - 15,875Cost of sales (11,616) - (11,616) ______ ______ ______Gross profit 4,259 - 4,259Distribution costs (1,031) - (1,031)Administrative expenses (1,618) (1,092) (2,710) ______ ______ ______Operating profit before finance costs 1,610 (1,092) 518Financial income 441 - 441Finance costs (528) - (528) ______ ______ ______Profit before tax 1,523 (1,092) 431Income tax expense 3 (458) 328 (130) ______ ______ ______Profit for the period 1,065 (764) 301 ______ ______ ______Attributable to:Equity holders of the parent 1,065 (764) 301 ______ ______ ______ Earnings per shareBasic (p) 5 0.8 ______Diluted (p) 5 0.8 ______ Consolidated income statementfor the six months ended 30 June 2006 (continued) Six months ended 30 June 2005 Pre- Post- exceptional Exceptional exceptional items items items Note £000 £000 £000 ______ ______ ______Revenue 2 13,691 - 13,691Cost of sales (10,620) - (10,620) ______ ______ ______Gross profit 3,071 - 3,071Distribution costs (936) - (936)Administrative expenses (1,077) (206) (1,283) ______ ______ ______Operating profit before finance costs 1,058 (206) 852Financial income 409 - 409Finance costs (515) - (515) ______ ______ ______Profit before tax 952 (206) 746Income tax expense 3 (29) - (29) ______ ______ ______Profit for the period 923 (206) 717 ______ ______ ______Attributable to:Equity holders of the parent 923 (206) 717 ______ ______ ______ Earnings per shareBasic (p) 5 2.0 ______Diluted (p) 5 2.0 ______ Consolidated income statementfor the six months ended 30 June 2006 (continued) Year ended 31 December 2005 Pre- Post- exceptional Exceptional exceptional items items items £000 £000 £000 ______ ______ ______Revenue 27,975 - 27,975Cost of sales (21,640) - (21,640) ______ ______ ______Gross profit 6,335 - 6,335Distribution costs (1,905) - (1,905)Administrative expenses (2,407) 1,449 (958) ______ ______ ______Operating profit before finance costs 2,023 1,449 3,472Financial income 813 - 813Finance costs (997) - (997) ______ ______ ______Profit before tax 1,839 1,449 3,288Income tax expense (569) (292) (861) ______ ______ ______Profit for the period 1,270 1,157 2,427 ______ ______ ______Attributable to:Equity holders of the parent 1,270 1,157 2,427 ______ ______ ______ Earnings per shareBasic (p) 6.7 ______Diluted (p) 6.7 ______ Consolidated statement of recognised income and expensefor the six months ended 30 June 2006 Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 ______ ______ ______(Losses)/gains on investment in foreign subsidiary (514) 487 846Effective portion of change in fair value of cash flow 147 - (79)hedgesActuarial gains/(losses) on defined benefit schemes 92 (368) (42)Tax on items taken directly to equity (28) 110 13 ______ ______ ______Net (expense)/income recognised directly in equity (303) 229 738Profit for the period 301 717 2,427 ______ ______ ______Total recognised income and expense for the period (2) 946 3,165 ______ ______ ______Attributable to equity holders of the parent (2) 946 3,165 ______ ______ ______ Consolidated balance sheetas at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 Note £000 £000 £000 ______ ______ ______AssetsProperty, plant and equipment 27,841 28,883 28,364Deferred tax assets 147 149 132 ______ ______ ______Total non-current assets 27,988 29,032 28,496Inventories 3,824 3,698 3,933Trade and other receivables 7,275 6,581 6,182Cash and cash equivalents 124 137 432 ______ ______ ______Total current assets 11,223 10,416 10,547 ______ ______ ______Total assets 39,211 39,448 39,043 ______ ______ ______EquityIssued share capital 6 (1,816) (1,814) (1,816)Share premium 6 (13,753) (13,727) (13,753)Capital redemption reserve 6 (5) (5) (5)Translation reserve 6 244 89 (270)Hedging reserve 6 (68) - 79Retained earnings 6 (9,172) (8,501) (9,857) ______ ______ ______Total equity (24,570) (23,958) (25,622) ______ ______ ______LiabilitiesLoans and borrowings (900) (1,300) (1,100)Employee benefits (4,873) (7,570) (5,220)Deferred tax liabilities (2,721) (2,194) (2,730) ______ ______ ______Total non-current liabilities (8,494) (11,064) (9,050) ______ ______ ______Bank overdraft (1,373) (265) -Loans and borrowings (400) (397) (400)Income tax payable (330) (611) (698)Trade and other payables (4,044) (3,153) (3,273) ______ ______ ______Total current liabilities (6,147) (4,426) (4,371) ______ ______ ______Total liabilities (14,641) (15,490) (13,421) ______ ______ ______Total equity and liabilities (39,211) (39,448) (39,043) ______ ______ ______ Consolidated cash flow statementfor the six months ended 30 June 2006 Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 ______ ______ ______Cash flows from operating activitiesProfit for the period 301 717 2,427Adjustments for:Depreciation 1,623 1,693 3,322Loss on sale of property, plant and equipment 3 5 -Financial income (441) (409) (813)Finance costs 528 515 997Equity-settled share-based payment expenses 40 29 (14)Income tax expense 130 29 861 ______ ______ ______ 2,184 2,579 6,780Increase in trade and other receivables (975) (797) (346)Decrease/(increase) in inventories 29 (554) (704)Increase in trade and other payables 665 559 334Decrease in provisions and employee benefits (186) (30) (2,003) ______ ______ ______ 1,717 1,757 4,061Interest paid (49) (94) (151)Income taxes paid (551) (429) (713) ______ ______ ______Net cash from operating activities 1,117 1,234 3,197 ______ ______ ______Cash flow from investing activitiesInterest received 4 13 26Acquisition of property, plant and equipment (1,541) (415) (1,070) ______ ______ ______Net cash used in investing activities (1,537) (402) (1,044) ______ ______ ______Cash flow from financing activitiesProceeds from the issue of share capital - - 49Repayment of borrowings (200) (200) (400)Payment of finance lease liabilities - (60) (57)Dividends paid (1,090) (1,088) (1,631) ______ ______ ______Net cash used in financing activities (1,290) (1,348) (2,039) ______ ______ ______Net (decrease)/increase in cash and cash equivalents (1,710) (516) 114Cash and cash equivalents at beginning of period 432 298 298Effect of exchange rate fluctuations on cash held 29 90 20 ______ ______ ______Cash and cash equivalents at the end of period (1,249) (128) 432 ______ ______ ______ Cash and cash equivalents for the purpose of the cash flow statement includesbank overdrafts. Notes to the interim financial statementsfor the six months ended 30 June 2006 1. Basis of preparation This interim financial information has been prepared applying the accountingpolicies and presentation that were applied in the preparation of the Company'spublished consolidated financial statements for the year ended 31 December 2005. The comparative figures for the financial year ended 31 December 2005 are notthe Company's statutory accounts for that financial year. Those accounts havebeen reported on by the Company's auditor and delivered to the Registrar ofCompanies. The report of the auditor was (i) unqualified, (ii) did not include areference to any matters to which the auditor drew attention by way of emphasiswithout qualifying their report, and (iii) did not contain a statement undersection 237(2) or (3) of the Companies Act 1985. 2. Segment reporting 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 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 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 polymersbusiness is currently in its early stages with development and marketing costsexceeding revenues. High performance Polyolefins polymers ConsolidatedSix months ended 30 June 2006 £000 £000 £000 ______ ______ ______Revenue 15,609 266 15,875Pre-exceptional result 1,885 (275) 1,610 ______ ______ ______Exceptional item * (1,092) - (1,092) ______ ______ ______Post-exceptional result 793 (275) 518 ______ ______ ______ * The exceptional item relates to costs incurred in respect of the termination of a commercial relationship with the Sekisui Group which was announced in March 2006. High performance Polyolefins polymers ConsolidatedSix months ended 30 June 2005 £000 £000 £000 ______ ______ ______Revenue 13,528 163 13,691Pre-exceptional result 1,255 (197) 1,058 ______ ______ ______Exceptional item * - - (206) ______ ______ ______Post-exceptional result - - 852 ______ ______ ______ * The exceptional item consists of bid costs relating to legal, advisory and other costs incurred in respect of a preliminary approach for the share capital of the Company which was announced in January 2005. 3. Taxation Six months Six months ended ended 30 June 30 June 2006 2005 £000 £000 ______ ______Current tax:UK corporation tax 170 465Foreign tax 12 (6) ______ ______ 182 459Deferred tax (52) (430) ______ ______ 130 29 ______ ______ The Group's consolidated effective tax rate for the six months ended 30 June2006 was 30%. In 2005 the effective tax charge was 4% primarily due to thepartial recognition of US tax losses as a deferred tax asset. 4. Dividends Six months Six months ended ended 30 June 30 June 2006 2005 £000 £000 ______ ______Final dividend for the year ended 31 December 2005 of 3.0p 1,090 1,087(2004: 3.0p) per share ______ ______ The final dividend for the year ended 31 December 2005 was paid on 26 May 2006. A proposed interim dividend for the year ended 31 December 2006 of 1.5p pershare (2005: 1.5p) was approved by the Board on 27 July 2006 and has not beenincluded as a liability as at 30 June 2006. 5. Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: Six months Six months ended ended 30 June 30 June 2006 2005 £000 £000 ______ ______EarningsEarnings for the purpose of basic earnings per share being net profit 301 717attributable to equity holders of the parentEarnings for the purposes of diluted earnings per share 301 717 ______ ______ Number of shares Number NumberWeighted average number of ordinary shares for the purposes of basic 36,319,924 36,260,296earnings per shareEffect of dilutive potential ordinary shares:Share options 66,041 81,600Weighted average number of ordinary shares for the purposes of diluted 36,385,965 36,341,896earnings per share ______ ______ 6. Capital and reserves Reconciliation of movement in capital and reserves Capital Share Share redemption Translation Capital premium reserve reserve £'000 £'000 £'000 £'000 ______ ______ ______ ______Balance as at 1 January 2006 1,816 13,753 5 270Total recognised income and expense - - - (514)Financial instruments - - - -Equity settled share based payments - - - -Dividends - - - - ______ ______ ______ ______Balance as at 30 June 2006 1,816 13,753 5 (244) ______ ______ ______ ______ Reconciliation of movement in capital and reserves (continued) Hedging Retained Total reserve Earnings equity £'000 £'000 £'000 ______ ______ ______Balance as at 1 January 2006 (79) 9,857 25,622Total recognised income and expense - 365 (149)Financial instruments 147 - 147Equity settled share based payments - 40 40Dividends - (1,090) (1,090) ______ ______ ______Balance as at 30 June 2006 68 9,172 24,570 ______ ______ ______ Independent review report to Zotefoams plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 which comprises the Consolidated IncomeStatement, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement,the Consolidated Statement of Recognised Income and Expense and the relatednotes. We have read the other information contained in the Interim Report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the Company those matters we are required to state to itin 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 forour review work, for this report, or for the conclusions we have reached. Directors' responsibilities The Interim Report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the Interim Report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the UK. A review consistsprincipally of making enquiries of management and applying analytical proceduresto the financial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Statements on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. KPMG Audit Plc Chartered Accountants1 Forest GateBrighton RoadCrawley RH11 9PT7 August 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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