Key Business Initiatives Undertaken by Ted Baker PLC and Zotefoams PLC During Challenging Environment

The global markets have responded favourably lately as U.S. Federal Reserve announced a further stimulus of USD 2.3 trillion to bolster US Economy. Subsequently, major rallies were observed in US, and European major indices. Let’s throw some light on two FTSE listed stocks, which were in the bright spot in Thursday’s trading session - Ted Baker PLC’s stock gained 19.57% and Zotefoams PLC soared over 9.27% on 9^th April 2020, against the previous day close.

Ted Baker PLC

(Company Website)

Ted Baker PLC (LON:TED) is an FTSE All-Share listed global lifestyle company. It offers a range of menswear, womenswear and accessories under its brand. The company report its business into three segments - Retail, Wholesale and Licensing.

Recent Significant Transition in the Management and the Board

• On 30^th March 2020: The group had appointed Chief Executive Officer to Rachel Osborne, with immediate effect. She was formerly serving as Chief Financial Officer.
• On 17^th December 2019: the group announced the appointment of Jon Kempster as an Independent Non-Executive Director with an immediate effect.

Tackling Short Term Uncertainties to Shine in Future

As on 20^th March 2020, the Ted Baker group announced the latest update, which included the following actions to curb the disruption caused by the coronavirus outbreak:

• The group announced the disposal of Big Lobster Limited for the consideration of approximately £78.75 million. However, under the sale and leaseback terms, the group will continue to hold the property with an annual rent of £3.25 million.
• To strengthen its liquidity, the group has discussed the additional credit facility through its lending bank for £13.5 million until 18 December 2020.
• Furthermore, pertinent to the impact of Covid-19, the group confirmed that its intensity is creating uncertainties across the group’s target markets. The group is now taking actions in relation to cost cut in operating expenses and capital expenditures. The group is expecting 100% business rates exemption, announced by the UK government though the Ted Baker has already paid £6.2m in FY 2020, as business rates.
• By that time, the group had closed 197 stores out of 416 sites globally. In such a scenario, the group was unable to provide any rational guidance; however, the company anticipated that the underlying pre-tax profit to be in the range of £5-10 million.

Risk Analysis

• Group is currently facing both economic and business risk.
• Fluctuation in personal good prices in the UK can impact the profitability.

Outlook While Sailing Through Challenging Conditions

During the full-year outlook (released on 25^th January 2020), the group discussed their underperformance and inefficiencies. It had reported a significant decline in both top-line and bottom-line figures.

Having said that, there is limited disruption over their supply chain network of the business, and their Chinese factories are now in an operational state. The group also holds a substantial volume of inventory level. Furthermore, the online business has been relatively resilient though the company. Hence, any expectations of fading Covid-19 contagion and suspension of lockdown state would be beneficial as Company has a strategy of continuous expansion that brings prospects for future.

Zotefoams PLC

(Source: Company Presentation)

Zotefoams PLC (LON:ZTF) is an FTSE All-Share listed company which manufacturers cellular materials. It specializes in manufacturing of lightweight cross-linked polyolefin block foams (AZOTE®). Additionally, it markets and licenses other closed-cell foam products such as ZOTEK® and T-FIT® along with microcellular materials technology. Globally, it has a workforce of nearly 450 people.

Global Presence

• Headquarter and manufacturing of AZOTE® & ZOTEK® are based in London, United Kingdom.
• North America is served by the facility in Kentucky, USA.
• T-FIT® range is catered by facilities in the UK and China.
• ZTF also having a joint venture in Hong Kong to manage block foam market in Asia.
• MuCell Extrusion LLC is responsible for creating micro-bubbles and is based in Massachusetts, USA.

Recent Product Upgradation

On 27^th February 2020, the group had unveiled the LZ45 Matt Black (which is the latest grade of AZOTE polyethylene foams). The upgrade will improve the efficiency and reduction in waste.

Decent Financial Performance and Strategic Progress Despite Challenging Market

As on 7^th April 2020, Zotefoams group has released its unaudited results for the financial year 2019. Major highlights were as follows:

• ZTF’s revenue was broadly in line with the previous year while the group revenue stood at £80.86m in FY2019 as against £81.04m in FY2018.
• The group had gone through a challenging market conditions; however, it was partially offset by growth in High-Performance Products (HPP) and MuCell Extrusion LLC (MEL) business segments.
• The gross profit margin stood at 35.4% in FY2019 versus 35.8% in FY2018, despite the higher depreciation and operating expenses related to new strategic assets.
• Eventually, the Profit before tax was overall in line with the last year and stood at £9.81m in FY2019 (FY2018: £9.86m). The group has witnessed a slightly higher EPS by 1% at 17.10 pence in FY2019 (FY2018: 16.96 pence).

Outlook Scenario

The group had performed decently in the financial year 2019 despite challenging market conditions faced in the second half of the year, particularly in their Polyolefin Foams business. The sales volume in Polyolefin Foams plummeted 10% in the financial year 2019, while the overall sales volume declined by 14%. In the second half of 2019, the group had to face supply chain destocking, which further contributed to demand loss; however, volume loss was somehow offset by the improvements in the product mix and favourable exchange rates.

As per management regarding long run prospects, the group is well positioned to grow revenue GBP 100 million and beyond by following recent investments in production capacity, people and products. The group is likely to experience a surge in demand for HPP products segment in the latter half of 2020. In the long-term, the group is confident about its position with a diverse customer base and competitive positioning.

Currently, the contagion of Covid-19 is causing further disruption. Moreover, in the prevailing uncertain market situation, the group is currently focussing on maintaining liquidity by cutting cost, strict operational management and rational capital management.

Disclaimer

The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.