Zotefoams plc (LON:ZTF), a world leader in cellular materials technology, has provided a trading update for the nine months ended 30 September 2023 and in respect of its financial year ending 31 December 2023.
Notwithstanding the challenging economic backdrop, the Group has continued to deliver a resilient performance, with year-to-date sales at a similar level to the comparative period of 2022, benefiting from a modest currency tailwind.
As anticipated, third quarter sales were lower year on year, reflecting subdued demand in most Polyolefin Foams markets, together with lower economic activity in China and an inventory adjustment in the supply chain to Nike. Against this backdrop, the Group continues to take effective pricing, cost and capacity management actions, which have enabled the business to remain agile and respond quickly to the volatility in demand dynamics.
The Group has also continued to invest in the development of ReZorce® recyclable barrier packaging technology and, following the signing of a joint development agreement, has made further progress against the milestones set, in advance of commercial trials scheduled for early 2024.
Full year expectation
The Group has good visibility of confirmed orders for the remainder of the year and expects to deliver revenue for 2023 at a similar level to 2022, albeit with an improved product mix.
Across our two foams business units, profitability for 2023 will see the positive benefit from an increasing proportion of sales from the HPP division, as well as the effect of strong pricing and operational efficiencies within Polyolefin Foams. Together with more favourable raw material and energy prices, this is expected to drive improved overall profitability, with margins significantly higher than the previous year.
In our MEL business unit, costs will increase as we further invest in ReZorce and address some legacy issues in the licensing and equipment business. The MEL business unit is now predominantly focused on the development of the ReZorce recyclable barrier packaging solution for beverage cartons.
The Board is confident in the Group’s ability to carry positive momentum through the remainder of the year. Based on its current sales forecasts and foreign exchange rates, and subject to there being no material disruption to the business, it expects adjusted profit before tax to be in line with current market expectations*.
Commenting on the update David Stirling, Group CEO of Zotefoams, said:
“The Group is delivering on its strategy to drive efficiencies and generate an enhanced sales mix in its foams business units, and we anticipate a strong final quarter to the year and good underlying growth in profitability in this part of the Group, despite lower economic activity and destocking in many markets recently.
“We are also delivering on our commitment to develop recyclable beverage cartons. Investment in the high-risk, high-reward ReZorce technology is tracking in line with management expectations ahead of market trials and represents a significant proportion of Group costs, which are evaluated continuously in the context of the wider Group performance and the very significant opportunity represented by its target markets.
“These are two very different businesses with different organisational and operational requirements, which we are delivering to a high standard.”
* Current Zotefoams-compiled consensus expectations for adjusted profit before income tax and separately disclosed items, for the year ending 31 December 2022, is £12.5m.
