Trading Update and Chair Succession
24 May 2023 – Zotefoams, a world leader in cellular materials technology, today provides a trading update for the four months ended 30 April 2023, ahead of its Annual General Meeting to be held today at 10am at 675 Mitcham Road, Croydon, CR9 3AL.
At this meeting Steve Good, Chair of Zotefoams, will make the following statement:
Trading in the four months ended 30 April 2023 was strong, with the Group delivering continued year-on-year revenue growth and with margins benefiting from pricing, operational efficiency initiatives and a stronger US dollar.
In addition, levels of input cost inflation were lower in the period and the Group has also benefitted from the phasing of planned SG&A spend increases.
Highlights, against the comparative prior year period, were:
- Group sales increased by 15%
- Polyolefin Foams sales increased by 14%:
- Volumes declined by 5%, primarily due to market-specific factors in continental Europe, which was more than offset by higher average selling prices as a result of previously implemented increases, favourable exchange rates and product mix
- High-Performance Products (HPP) sales increased by 19%:
- Footwear sales grew strongly, with a 12% increase in volumes and a higher average selling price, primarily due to the stronger US dollar but also with a slightly more favourable product mix
- Sales volumes of ZOTEK® F technical foams for aviation and other markets declined by 13%. A relatively slow start to the year belies an improved demand environment
- T-FIT®insulation products sales were at a similar level
- In line with the normal seasonality of our business, our HPP business represents a smaller share of total revenue at this stage in the year
- MuCell Extrusion’s focus is on the technical and commercial development of ReZorce®mono-material packaging solutions. In the period, the business unit has:
- Transitioned its initial raw material formulations to its facility in Denmark in preparation for commercial trials in Europe for ReZorce cartons
- Made good progress on downstream processing of ReZorce sheet for cartons using off-the shelf commercial processing equipment
- Cash generation and management has been strong in the period, with the leverage ratio being around 1.1x on a trailing 12-month basis, improved from 1.2x at 31 December 2022.
While the macroeconomic environment remains uncertain, the cost environment for the Group has improved in the early part of 2023.
Pricing for LDPE (the main material used in polyolefin foams) is relatively stable and at levels which are significantly lower than the all-time highs seen in 2022, albeit higher than long-term historic average pricing. Energy costs have also fallen from recent highs, but market prices remain volatile and forward prices are significantly higher than spot price as a result. Other cost inflation has generally been moderate with the exception of speciality polymers and wage inflation.
In the previous two years, Zotefoams has reacted to input-price movements by increasing selling prices and focusing on internal efficiencies and controllable costs, while proactively implementing actions to mitigate supply chain risks. In the period, there have been no major pricing actions and the current focus in Polyolefin Foams is to align the Group’s product offering and pricing with the value its products deliver across markets globally.
The Board anticipates further sales growth in the year to come primarily from the HPP portfolio, with good opportunities across all product groups. Prospects for volume growth in the Polyolefin Foams business unit are more reliant on general industrial market conditions, which we expect to remain challenging everywhere except for North America. At current exchange rates, the Board expects little impact from currency on full-year profit.
Internally, the Group is well-positioned to deliver further operational improvements and its spending plans are focused on key deliverables. This includes a significant spend on the ReZorce mono-material packaging development within the MuCell Extrusion business unit.
Performance in the early part of the year evidences continued demand for the Group’s products together with its resilient operating platform. While being mindful of remaining macroeconomic volatility, the Board’s full year expectations remain unchanged and it is confident about the long-term prospects of the business.
As previously announced, Steve Good, who has been Chair of Zotefoams plc since 2016 and a non-executive director since 2014, will step down from the Board following the conclusion of the 2023 AGM. Steve will be replaced as Chair by Dr Lynn Drummond.
Commenting on the update David Stirling, Group CEO of Zotefoams, said:
“I am pleased with the business performance in the first four months of the year and also the progress made on ReZorce carton development. The business has opportunities for growth in a number of HPP markets and better margins in Polyolefin Foams reflect pricing and cost management actions taken over the past year. With good cash generation and management, the business is well placed for further growth.
“It has been a pleasure to work with Steve Good as a fellow Director since 2014 and Chair since 2016, over which time the business has experienced strong growth and transformational change, which has included significant investment in global manufacturing capacity and in new product development. On behalf of the Board of Zotefoams plc and our management and staff, I thank Steve for his contribution to our success over the years and wish him all the best for the future.”
Note. The Board understands that current market expectations for the year ended 31 December 2023 are revenue of £135m and adjusted profit before tax of £12.6m.