Preliminary Results for the year ended 31 December 2008
Financial Performance
• Total revenues up 11% to $33.9m (2007: $30.7m)
• Substantial increases in our cost base lead to gross margin reducing to 45% (2007: 52%)
• Pre-tax profit before exceptionals $0.7m (2007 profit: $5.3m)
• Exceptional provision of $3.0m against deposits at financial institutions to which access has been restricted (2007: nil)
• Pre-tax loss after exceptionals $2.3m (2007 profit: $5.3m)
Operating Highlights
• Since the year end, as part of negotiations to agree a new supply and licensing agreement with Solvay, owners of the Rosignano plant, Solvay repaid to Zirax the original advance payment of €2.2m (including interest of €0.2m)
• Remains the second largest supplier of calcium chloride pellets globally and the leading supplier in the Eastern Hemisphere
• Major contract win to supply 14,000 MT pa to an oil producing company in the Middle East
• Sixth consecutive award of Moscow de-icing contract
• Acquisition of Solith in January 2008
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Financial Review for the year ended 31 December 2007
Total revenue for 2008 increased 11% from the previous year to $33.9m. Within our segments, sales of Oilfield Process Chemicals have grown to $25.3m, which is a 58% increase over 2007, whilst reducing our dependence on high performance
De-icing products. Sales in this segment were $5.5m in 2008 from $12.4m in 2007. We have coupled this with an increase in the Industrial sector to $3.1m from $2.3m, further spreading our segment range and exploring new applications.
Cost of sales showed a 28% increase from $14.6m in 2007 to $18.8m in 2008 as costs of raw materials and energy increased at a higher rate than our revenue. Distribution expenses grew 45% to $9.8m compared to $6.8m in 2007 reflecting the cost of supplying Europe and Middle East customers from Russia together with increased distribution costs within Russia. General and administrative expenses for 2008 include an exceptional impairment provision against cash and cash equivalents of $3.0m. Excluding this exceptional item, general and administrative expenses increased 36% to $6.1m in 2008 compared to $4.5m in 2007 reflecting in part the increase in employee numbers from 211 at the end of 2007 to 239 at the close of 2008, as we acquired the staff of Solith and expanded some administrative functions.
Operating profit before exceptional item became negative at $(0.8)m in 2008 from $4.7m in 2007. An exceptional provision of $3.0m has been taken against cash deposits at a financial institution in Russia, where we believe there to be a greatly increased credit risk and access to the deposits has been restricted, resulting in an operating loss after exceptional item of $3.8m compared to a profit of $4.7m in 2007. Foreign exchange gains of $1.6m in 2008 resulted from significant movements in foreign currency exchange rates compared to a foreign exchange gain of $0.2m in 2007. This follows through to a loss before taxation of $2.3m in 2008 compared to a profit before taxation of $5.3m in 2007. Loss for the year after tax was $3.4m compared to a profit of $3.7m in 2007.
Basic EPS was a loss of 1.98 cents for 2008 compared to a profit of 2.17 cents in 2007. The basic EPS in 2008 before the exceptional item was a loss of 0.27 cents. In line with the Board’s stated strategy no dividend will be payable for the current period (nil: 2007).
Investment in property, plant and equipment and intangible assets of $1.9m in 2008, primarily results from the continued expansion of our Volgograd plant and facility and the acquisition of patent rights. Additionally through the acquisition of Solith a further $0.9m of property, plant and equipment was brought in to the group along with $1.0m of goodwill.
In 2008 net cash generated from operations before exceptional items amounted to $4.6m compared to net cash used in operations of $3.4m in 2007. This net cash flow from operations was significantly increased in 2008 as a result of the reversal of the timing of the Moscow City council contract for the winter season 2007/08, which was finalised late in the 2007 financial year resulting in a significantly higher closing receivable position at December 2007. 2008 was then significantly impacted by an exceptional provision of $3.0m against cash held at a financial institution resulting in net cash generated from operations of $1.7m.
Cash capital expenditure was $1.9m as we continue the expansion of the Volgograd plant capacity and further secured our intellectual property. $0.5m was spent in cash on the acquisition of Solith. We were also able to reduce borrowings by a net $2.1m.
Due to the exceptional provision against cash and cash equivalents it is possible some or all of the borrowings and facilities may become immediately repayable as a result of a possible material adverse change in the financial condition of Zirax LLC and the Zirax Group. In addition the possibility exists that the existing borrowings and facilities that expire during the next year will need to be replaced to maintain appropriate levels of working capital and that they may not be renewed on existing terms or at all by the Group’s lenders. As a result the management team will immediately begin discussions with all the Group’s lenders to seek their ongoing support for the business. The Group is trading profitably with a positive trading outlook underpinned by the continued strong demand for its products. The management are therefore reasonably confident of securing the ongoing support from the banks. Further details of the Group’s liquidity position and going concern review are provided in note 1 and note 25 of the financial statements on pages 30 and 54.
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