Interim Report for the Six Months Ended 30 June 2023

Strong sales growth and recovery in gross margin drives record H1 profit

Results highlights

Group revenue of £64.6m, 9% higher year-on-year (HY 2022: £59.0m)

  • High-Performance Products (HPP) sales up 11% to £26.4m (HY 2022: £23.7m)
  • Polyolefin foams sales up 10% to £37.7m (HY 2022: £34.3m)

  • Improved gross margin, up to 32.8% from 28.9%
  • Profit before tax (PBT) increased 30% to £7.4m (HY 2022: £5.7m)
  • Excluding MuCell Extrusion, PBT increased 49% to £9.4m (HY 2022: £6.3m)
  • Basic earnings per share increased 22% to 11.53p (HY 2022: 9.42p)
  • Continued strong cash generation of £5.8m (HY 2022: £5.2m), with leverage multiple at 1.1
  • Interim dividend increased by 4.6% to 2.28p per share (2022: 2.18p per share), reflecting continuing confidence in the Group’s prospects

Strategic highlights

  • Margin recovery delivered with realignment of selling prices to input costs after a volatile post-COVID period
  • Well positioned to benefit from aviation market recovery
  • Exclusivity agreement with Nike extended to 31 December 2029
  • Joint development agreement with a world-leading packager of beverages signed in July 2023, following good technical and pre-commercial progress on ReZorce® recyclable barrier packaging. Group profit delivered after absorbing £1.5m (HY 2022: £0.6m) of ReZorce-specific costs

Financial summary

 

Six months ended 30 June 2023

Six months ended 30 June 2022

Change

Group revenue (£m)

64.6

59.0

9%

Gross margin (%)

32.8

28.9

–

Operating profit (£m)*

8.5

6.6

29%

Profit before tax (£m)*

7.4

5.7

30%

Basic EPS (p)*

11.53

9.42

22%

Cash generated from operations (£m)

5.8

5.2

12%

Interim dividend (p)

2.28

2.18

4.6%

Leverage ratio (multiple)

1.1

2.0

– 

Net debt (£m)

28.3

38.0

26%

*Unadjusted for £131k (HY 2022: £121k) of amortisation on acquired intangibles

Commenting on the results and the outlook, David Stirling, Group CEO, said:

“The business has delivered strong revenue growth along with margin recovery, predominantly in our Polyolefin Foams business where cost inflation had been significant.

With the benefit of currency tailwinds, profit before tax in the period has increased 30% to a record £7.4m (HY 2022: £5.7m). Particularly pleasing is the progress being made in the foam manufacturing side of our business (comprising our Polyolefin Foams and HPP segments), where operating profit increased 46% to £10.5m (HY 2022: £7.1m).

We are also delighted to extend the exclusive supply agreement with Nike to the end of 2029.

“We have made demonstrable progress with ReZorce recyclable barrier packaging technology, including entering into a joint development agreement with a global leader of beverage packaging, and our ongoing investment, combined with the rest of the MEL business segment, generated a £2.0m (2022: £0.6m) operating loss.

Investment in ReZorce recyclable barrier packaging technology in the second half is planned to be slightly above that of the first six months.

“The short-term outlook for the remainder of the year is somewhat tempered by market expectations of squeezed consumer spending and industrial deflation, resulting in inventory reductions in some of our markets.

Other markets, such as aviation, are not expected to be impacted by this trend, with underlying structural growth drivers remaining robust.

We expect energy and polymer input costs to be more beneficial while the US dollar, at a current rate of around $1.28, will provide a headwind to profitability for the remainder of the year, after benefitting operating profit by £1.1m in H1 2022 despite being partially hedged.

“Overall, the Board is pleased with the recent performance and current positioning of our business. We remain confident that the Company can deliver a full year performance in line with market expectations, underpinned by a strong first half performance.

We remain optimistic that we can continue our positive momentum in the medium term.”

To read the full Interim Report, please visit our Investor pages: https://www.zotefoams.com/investors/announcements/

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