Final Results
Porvair PLC
27 January 2004
27 January 2004
Contacts:
Ben Stocks, Chief Executive
Mark Moran, Group Finance Director
Porvair plc today 0207 466 5000
at all other times 01553 761111
Charles Ryland/Catherine Miles
Buchanan Communications 0207 466 5000
PORVAIR plc ('Porvair')
PRELIMINARY RESULTS FOR THE YEAR ENDED 1 DECEMBER 2003
Porvair, the specialist filtration Group, announces its preliminary results for
the year ended 1 December 2003.
KEY POINTS
• Considerable progress made on stated strategy, with disposal of
non-core businesses transforming Porvair into a specialist filtration group with
exciting new materials opportunities.
• Exceptional loss on disposal of £23.0m, but transaction broadly cash
neutral as planned. This exceptional loss, together with £3.3m operating loss on
discontinued activities represent major constituents of overall loss before tax
of £28.5m (2002: £2.1m).
• Adjusted profit of continuing business* of £1.6m after R&D expenditure
of £4.7m, represents a strong result relative to previous year (2002: loss of
£0.4m).
• Further growth in demand for new materials in 2003 and high growth
opportunities validating significantly increased R&D investment in new materials
technologies.
• Recovery of Selee started, good progress in Porvair Filtration Group,
and second record year for Porvair Sciences.
• Final dividend of 1.0 p per share (2002: 4.3p), making a total for
2003 of 3.4 p per share (2002: 6.7p).
• Continuing group is profitable and cash generative, representing a
sound base for the future development of Porvair.
• Encouraging start to 2004 both in financial terms and in terms of
technical progress.
* on ordinary continuing activities before taxation, goodwill amortisation and
exceptional costs
John Morgan, Chairman, said:
'Porvair enters 2004 as a specialist filtration business whose competitive
strength is based on proprietary microporous materials expertise. Overall the
Group is profitable and cash generative. We have a range of high growth
opportunities that have the potential to transform the financial performance of
Porvair and fully justify the on-going development investment costs. We have
made an encouraging start to 2004, both in financial terms and in terms of
technical progress, and the Board views the future with optimism. '
2003 Chairman's statement
I am pleased to report that the Group has made great progress in 2003, in what
has been a year of considerable change as Porvair has moved to the next stage of
the strategy first set out three years ago.
Since 2001, Porvair has :
• Significantly increased research & development investment in new
materials technologies that the Board believes have the potential to transform
the financial performance of the Group
• Commissioned new manufacturing facilities in both Selee and the
Porvair Filtration Group, and made strategic acquisitions to strengthen both
these specialist filtration businesses
• Disposed of those businesses which no longer fitted in to the long
term plans for Porvair
In 2003 the benefits of this activity really started to show through. Following
the disposals, Porvair has a sharper commercial focus and a stronger financial
profile. The businesses that are continuing with the Group performed well in
2003. Selee started to recover from a difficult 2002; the Porvair Filtration
Group had a good year; Porvair Sciences delivered a record year; and exciting
advances were made with the new materials at Porvair Fuel Cell Technology
('PFCT').
The disposals of Porvair International and Porvair Ceramics were explained in
full in my letter to shareholders dated 14 November 2003, in which I noted that
the prime reason for the transactions was to allow both the management and
capital resources of the Group to focus on the exciting high-growth
opportunities we have been developing. With this transaction, Porvair has
changed. It is a specialist filtration business whose strength is founded on its
microporous materials and design engineering expertise. Porvair no longer
operates chemical plants and as a result the Board expects to generate much
better returns on assets.
The continuing Group; comprising Porvair Selee, Porvair Filtration Group, PFCT
and Porvair Sciences; serves a range of niche filtration markets, and continues
to invest a significant proportion of its earnings into research & development.
This investment holds back Group profits, but the nature of the materials and
markets involved fully justifies the expenditure incurred. The Board is
particularly encouraged that demand for our new materials has grown again in
2003, and shareholders will see in the operating review below that Porvair's
bi-polar plates are demonstrating superior technical performance. As a
consequence of this demand the US plant has been reorganised, at an exceptional
cost of £1.5m, in preparation for the next phase of development.
Due to the accounting treatment of the business disposals undertaken during the
year, the presentation of the financial results is unavoidably complex. A
summary of the main features is set out in the table below:
2003 2002
£ m £ m
Loss on ordinary activities before taxation (28.5) (2.1)
Add back:
- Goodwill amortisation 2.3 2.3
- Exceptional items : discontinued 23.0 -
- Exceptional items : continuing 1.5 -
- Losses/(profits) of discontinued operations 3.3 (0.6)
Adjusted profit/(loss) on ordinary continuing activities before
taxation, goodwill amortisation and exceptionals 1.6 (0.4)
In brief:
• The continuing businesses generated an adjusted profit of £1.6m after
R&D expenditure of £4.7m (2002: £4.6m). This was a strong result relative to the
previous year (2002: adjusted loss of £0.4m), and the Board is encouraged that
these businesses represent a sound base for the future development the Group.
• The Group has recognised losses of £26.3m in respect of the
discontinued businesses, being trading losses of £3.3m and exceptional charges
of £23.0m. The exceptional charge is primarily related to the loss on chemical
plant assets, many of which have been with the Group since the mid-1960's, and
to provisions for the remaining associated pension and property liabilities.
Trading losses were incurred as management directed the businesses to maximise
cash generation. The Board expects to achieve its overall objective for this
transaction, which was to achieve a cash-neutral exit from the oldest assets in
the Group.
• Year end borrowings were £10.1m, an excellent result, but one that
shareholders should note was struck after the proceeds of the disposal were
received, but before some of the applications for those proceeds were spent. In
addition to normal post-transaction adjustments and expenses, the Board expects
to apply a proportion of the proceeds to Porvair Pension Plan funding, about
which actuarial advice is now being taken. Taking into account such adjustments,
a more representative underlying borrowings level for the Group would be around
£1.5m higher. Bank facilities have recently been re-committed for a further
three year term.
Dividend
As previously announced, the Board has reviewed its dividend policy in light of
the changing nature of the Group and its intention to continue investing in its
new material development opportunities. A final dividend of 1.0p is recommended
for 2003 as anticipated at the time of the disposal announcement in November
2003, and gives a total dividend for the year of 3.4p.
Board and employees
In view of the importance of the opportunities for the new materials in the US,
our Chief Executive Ben Stocks relocated to Hendersonville in December 2003.
After six years with the Group, Mark Moran, finance director, has decided to
rejoin his family in the South East of England and will resign from the Board at
the end of January. Mark has made a significant contribution to Porvair, and the
Board is most grateful to him for all he has achieved on our behalf. We expect
to appoint a successor during the course of 2004. We wish the Moran family well,
as we do all our staff, who again this year have worked with enthusiasm and
commitment in a fast changing environment.
Outlook
Porvair enters 2004 as a specialist filtration business whose competitive
strength is based on proprietary microporous materials expertise. Overall the
Group is profitable and cash generative. We have a range of high growth
opportunities that have the potential to transform the financial performance of
Porvair and fully justify the on-going development investment costs. We have
made an encouraging start to 2004, both in financial terms and in terms of
technical progress, and the Board views the future with optimism.
John Morgan, Chairman
27 January 2004
Operating & Financial review
During 2003 Porvair Selee recovered from a tough 2002. Marginally improved
dollar sales, cost controls and efficiency savings helped gross margins improve
by 30%, and as a result the business returned to profitability. We expect to see
further efficiency gains in 2004 and are ensuring proper emphasis is given to
margins. Selee maintains its strong position in the market for aluminium
filtration, and is using its porous ceramic know-how to develop ancillary
applications in molten metal consumables and other filtration markets.
The Porvair Filtration Group completed its second full year with sales and gross
margins ahead 3% and 6% respectively of 2002. During the year a new
microfiltration manufacturing facility was commissioned, and orders for this
facility are strong. We made good progress in several key segments, notably
aerospace, where activity has recovered somewhat from the lows of 2002; and
energy, where both hot gas filters and nuclear clean-up filters have performed
well. Several of the new product developments initiated when this business was
formed in 2001 - for example in ink jet filtration - are expected to come on
stream in 2004.
Porvair Sciences remains a small but highly valued part of the Group, which
delivered a second record year, with profits at the operating level 9% ahead of
2002. This business makes filters, handling devices and porous media for life
science laboratories. These are competitive markets and in recent years Porvair
Sciences has performed well.
Porvair Fuel Cell Technology ('PFCT') had an exciting year. Strong customer
demand in the middle of the year led to a rapid manufacturing scale-up for '
first generation' bi-polar plates, in partnership with United Technologies
Corporation Fuel Cells and the US Government Department of Energy. Bi-polar
plates are key components in PEM fuel cells, and Porvair plates are beginning to
show compelling technical attributes when compared to industry standards:
Porvair 1st generation Industry Standard
Conductivity 600S/cm 100S/cm
Weight 1.2g/cc 1.8g/cc
Plate thickness to 1.2mm to 1.8mm
Flex strength *(psi) 7000 4500
* at typical density
These attributes - highly conductive, thin, strong and light plates - when
combined with the low cost manufacturing potential of the material, and our
ability to control its microporosity, have led to substantial customer demand.
We are already specified in both stationary and automotive programmes, and as
confidence in our plate performance grows we are increasingly involved in new
test protocols with new customers.
The next phase of this programme will be to refine our 'second generation'
plates such that they become suitable for ultra low cost manufacturing; and to
begin to move through necessary testing with existing and new customers. This
will take up most of our time in 2004. If successful, Porvair will become a
highly competitive carbon bi-polar plate manufacturer, and therefore is well
placed to take advantage as and when PEM fuel cell markets develop.
PFCT is also developing proprietary porous metal materials. Some of this work
was held back in 2003 by accelerated bi-polar plate activity, but additional
resources were brought in towards the end of the year, and this programme is
again building momentum. In general these materials are not related to fuel cell
markets. Early commercial applications have been achieved in industrial burners,
pressure vessels and water treatment devices. Longer term development, notably
in industrial electrical conductors, compact heat exchangers and emission
controls continue to test promisingly. We would expect a handful of these
opportunities to progress to early commercial stages in 2004.
Cash Flow
Cash flow management remains a key priority for the Group. Net cash generation
during the year was £0.6m, with net borrowings at year end falling by £1.7m to
£10.1m. However, as noted in the Chairman's statement, this figure recognises
the cash inflows relating to business disposals, but due to year end timing,
does not recognise the corresponding outflows.
Health, Safety & Environmental
Overall responsibility for health, safety and the environment rests with the
Group Board, and we will again be publishing our HS&E policy and report on
www.porvair.com website. We are proud of the fact that many of the products sold
and under development at Porvair are used to the benefit of the environment.
Porvair at a glance
Introduction to Porvair
Porvair is a specialist filtration company :
• Metals filtration: Porvair Selee invented the ceramic
foam filter, and leads the world in its application to molten aluminium. A wide
range of porous and microporous technologies serve other metals industries.
• Microfiltration materials and systems: Porvair
Filtration Group and Porvair Life Sciences are specialist microfiltration
businesses, expert in both filtration and filtration media for specific
applications.
• Microporous metals and carbons: Porvair Fuel Cell
Technology is an R&D operation that is developing new and unique Porvair
materials for a range of fast growing markets, one of which is fuel cell
components.
Metals filtration: Locations and activities
Hendersonville and Gilberts, USA:
porvair Brings ceramics expertise to the field of molten metal
handling, catalyst media and thermal processing.
World leader in aluminium filtration
Microfiltration:
Shepperton, UK:
porvair Specialises in assay equipment and other microplate
sciences products for the Life Sciences market
Fareham, New Milton and Wrexham, UK; Rock Hill, USA:
porvair Develops innovative sintered metal and polymer
filtration group solutions to filtration problems.
Uses sintered metals and polymers in the design and
manufacture of specialist filters and filtration
devices
New materials:
Hendersonville, USA:
Develops media and components for fuel cell, heat
Porvair exchange, chemical process, emission control and water
treatment applications
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 1 December 2003
Continuing Discontinued Group Group
Note Operations Operations 2003 2002
£'000 £'000 £'000 £'000
Turnover
Continuing operations (including share of joint 1 46,167 18,042 64,209 68,485
venture)
Less : share of joint venture - - - (153)
46,167 18,042 64,209 68,332
Cost of sales (30,000) (16,493) (46,493) (46,330)
Gross profit 16,167 1,549 17,716 22,002
Distribution costs (795) (695) (1,490) (1,892)
Research & development expense (4,661) (1,174) (5,835) (5,867)
Exceptional item 3 (1,525) - (1,525) -
Other administrative expense (11,125) (2,979) (14,104) (16,009)
Total administrative expenses (17,311) (4,153) (21,464) (21,876)
Group operating loss before joint venture and
associated undertaking (1,939) (3,299) (5,238) (1,766)
Share of operating loss of joint venture - - - (94)
Share of operating profit of associated undertaking 159 - 159 181
Total Group operating loss 1 (1,780) (3,299) (5,079) (1,679)
Exceptional losses on disposals of business' assets 3 (23,033) -
Interest payable (net) (379) (451)
Loss on ordinary activities before taxation (28,491) (2,130)
Loss on ordinary activities before taxation (28,491) (2,130)
Add back - goodwill amortisation 2,290 2,299
exceptional item (continuing) 1,525 -
exceptional loss (discontinued) 23,033 -
losses/(profits) - discontinued 3,246 (597)
Adjusted profit on ordinary continuing activities
before
taxation, goodwill amortisation and exceptionals 1,603 (428)
Tax on loss on ordinary activities 5 4,095 352
Loss on ordinary activities after taxation (24,396) (1,778)
Equity minority interests (394) (101)
Loss attributable to shareholders (24,790) (1,879)
Dividends 4 (1,251) (2,467)
Retained loss for the financial year (26,041) (4,346)
Losses per share
- basic and diluted 2 (67.4)p (5.1)p
Reconciliation of movements in equity shareholders' funds
For the year ended 1 December 2003
GROUP
2003 2002
£'000 £'000
Loss attributable to shareholders (24,790) (1,879)
Dividends (1,251) (2,467)
Retained loss for the year (26,041) (4,346)
Exchange differences (137) (613)
Net decrease in equity shareholders' funds (26,178) (4,959)
Opening equity shareholders' funds 58,374 63,333
Closing equity shareholders' funds 32,196 58,374
Statement of total recognised gains and losses
For the year ended 1 December 2003
GROUP
2003 2002
£'000 £'000
Loss attributable to shareholders (24,790) (1,879)
Exchange differences (137) (613)
Total losses recognised in the year (24,927) (2,492)
BALANCE SHEET
As at 1 December 2003
GROUP
2003 2002
Note £'000 £'000
Fixed assets
Intangible assets 30,204 33,349
Tangible assets 9,277 20,734
Investment in associated undertaking 2,453 2,348
41,934 56,431
Current assets
Stocks 7,088 14,661
Debtors falling due after more than one year 2,624 3,178
Debtors falling due within one year 9,039 16,616
11,663 19,794
Cash at bank and in hand 3,980 3,261
22,731 37,716
Creditors
Amounts falling due within one year (9,001) (28,442)
Net current assets 13,730 9,274
Total assets less current liabilities 55,664 65,705
Creditors
Amounts falling due after more than one year (14,081) -
Provisions for liabilities and charges (4,117) (2,455)
Net assets 1 37,466 63,250
Capital and reserves
Called up share capital 736 736
Share premium account 28,679 28,679
Other reserves (861) 4,329
Profit and loss account 3,642 24,630
Total equity shareholders' funds 32,196 58,374
Equity minority interests 5,270 4,876
37,466 63,250
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 1 December 2003
Group Group
Note 2003 2002
£'000 £'000
Net cash inflow from operating activities 6 2,054 2,798
Dividend from associated undertaking 129 -
Returns on investments and servicing of finance
Interest received 65 104
Interest paid (642) (368)
(577) (264)
Taxation
UK corporation tax paid (194) (660)
Overseas tax refunded 1,107 327
913 (333)
Capital expenditure
Purchase of tangible fixed assets (1,806) (3,070)
Sale of tangible fixed assets 8 77
(1,798) (2,993)
Acquisitions and disposals
Disposal of businesses 9 2,304 -
Equity dividends paid (2,467) (2,467)
Net cash outflow before financing 558 (3,259)
Financing
Increase in net borrowings 7 298 4,105
Increase in cash in the year 7 856 846
NOTES
1. Turnover and segmental analyses
(a) Turnover by geographical segment 2003 2002
By By By By
destination origin destination origin
£'000 £'000 £'000 £'000
United Kingdom 15,277 24,157 14,606 23,209
Continental Europe 5,286 - 5,152 -
Americas 22,513 22,010 22,058 22,275
Asia 1,801 - 1,679 -
Australasia 553 - 629 -
Africa 737 - 1,360 -
Continuing Group 46,167 46,167 45,484 45,484
Discontinued operations 18,042 18,042 22,848 22,848
64,209 64,209 68,332 68,332
(b) Segmental analyses 2003 2002
£'000 £'000
i) Turnover
Metals Filtration 20,020 21,489
Microfiltration 24,157 23,209
Fuel Cells 1,990 786
Continuing Group 46,167 45,484
Discontinued operations 18,042 22,848
64,209 68,332
The comparative information has been restated to separate the discontinued
activities previously included within the Microfiltration segment.
2003 2002
Before Goodwill After Before Goodwill After goodwill
goodwill goodwill goodwill
ii) Operating profit/ £'000 £'000 £'000 £'000 £'000 £'000
(loss)
Metals Filtration 242 (1,226) (984) (839) (1,237) (2,076)
Microfiltration 3,900 (1,011) 2,889 3,182 (1,009) 2,173
Fuel Cells (2,160) - (2,160) (2,320) - (2,320)
Exceptional item (1,525) - (1,525) - - -
Continuing Group 457 (2,237) (1,780) 23 (2,246) (2,223)
Discontinued operations (3,246) (53) (3,299) 597 (53) 544
(2,789) (2,290) (5,079) 620 (2,299) (1,679)
The exceptional item relates primarily to the Metals Filtration segment.
The analysis of operating profit is provided as it represents a clearer
presentation of the businesses' performance
iii) Net assets Before Goodwill Net assets Before Goodwill Net assets
goodwill including goodwill including
goodwill goodwill
£'000 £'000 £'000 £'000 £'000 £'000
Metals Filtration 7,488 14,141 21,629 10,161 15,584 25,745
Microfiltration 9,268 16,063 25,331 8,691 17,765 26,456
Fuel Cells 1,154 - 1,154 1,214 - 1,214
17,910 30,204 48,114 20,066 33,349 53,415
Associated undertaking 2,453 2,348
Discontinued businesses (3,586) 23,018
Taxation 961 (2,160)
Dividend payable (368) (1,583)
Net borrowings (10,108) (11,788)
37,466 63,250
The businesses in the Metals Filtration and Fuel Cells segments are based in
America.
2. Earnings per share
Year ended Year ended 30
1 Dec 2003 Nov 2002
Losses per share
Losses (£'000) (24,790) (1,879)
Number of shares (weighted) 36,803,011 36,803,011
Losses per share (67.4)p (5.1)p
3. Exceptional items
During the period plans were completed for the re-organisation of the
Hendersonville plant in preparation for the next phase of fuel cell development.
As a result various assets have been earmarked for disposal and the total
costs of the reorganisation amounted to £1,525,000 - these are shown as
operational exceptional charges against the continuing businesses.
Exceptional costs arising from the disposal of Porvair International and Porvair
Ceramics, together with the wind down of the related membranes business in
Canada are shown as non-operational exceptional charges against the discontinued
operations and were as follows:
2003
£'000
Disposal of Porvair International and Porvair Ceramics (note 9) 15,888
Related transaction costs 414
Provision for residual pension and property liabilities 4,700
Closure costs of Canadian operation 1,070
Other 961
23,033
4. Dividends
The Board is recommending a final dividend of 1p per share (2002:
4.3p) to be paid on 12 April 2004 to shareholders on the register at the close
of business on 19 March 2004.
5. Tax on loss on ordinary activities
Group Group
2003 2002
£'000 £'000
UK corporation tax at 30% (2002: 30%)
Current period tax 81 (1,111)
Adjustments in respect of previous periods 618 269
Total UK current tax 699 (842)
Overseas tax (payable)/ receivable (101) 1,499
Tax on share of profits of associated undertaking (14) (51)
Total current tax 584 606
Deferred tax 3,511 (254)
Tax credit on loss on ordinary activities 4,095 352
6. Reconciliation of operating loss to net cash inflow from operating
activities
Continuing Disposals 2003 2002
businesses
£'000 £'000 £'000 £'000
Operating loss before exceptional items (255) (3,299) (3,554) (1,679)
Goodwill amortisation 2,237 53 2,290 2,299
Depreciation 1,700 1,609 3,309 3,512
Loss on sale of fixed assets 53 - 53 44
Decrease/(increase) in stocks (533) 483 (50) 82
Decrease/(increase) in debtors 144 2,036 2,180 (1,081)
Increase/(decrease) in creditors 91 (1,771) (1,680) (110)
Share of joint venture and associated undertaking (159) - (159) (87)
Net cash inflow/(outflow) from operating
activities before exceptional items 3,278 (889) 2,389 2,980
Exceptional items (335) (182)
Net cash inflow from operating activities 2,054 2,798
7. Reconciliation of net cash flow to movement in net borrowings
2003 2002
£'000 £'000
Increase in cash in the year 856 846
Increase in borrowings (298) (4,105)
Change in net borrowings from cash flows 558 (3,259)
Translation difference 1,122 828
Movement in net borrowings in the year 1,680 (2,431)
Opening net borrowings (11,788) (9,357)
Closing net borrowings (10,108) (11,788)
8. Analysis of net borrowings
01/12/02 Cash flow Other Exchange 01/12/03
non-cash movement
£'000 £'000 £'000 £'000 £'000
Cash in hand and at bank 3,261 856 - (137) 3,980
Borrowings due after 1 year - (339) (15,001) 1,259 (14,081)
Borrowings due within 1 year (15,049) 41 15,001 - (7)
Total (11,788) 558 - 1,122 (10,108)
9. Disposals
As a result of the shareholder resolution passed at the Extraordinary General
Meeting on 1 December 2003, the trade and the majority of the assets and
liabilities of Porvair International and Porvair Ceramics were sold to
management.
Porvair Porvair Total
International Ceramics
£'000 £'000 £'000
Net assets disposed
Fixed assets 7,521 979 8,500
Stock 6,147 862 7,009
Debtors 2,824 2,758 5,582
Creditors (1,932) (230) (2,162)
Total book value 14,560 4,369 18,929
Sale proceeds:
Cash (2,518)
Deferred and contingent consideration (1,750)
Provision against contingent consideration 750
(3,518)
Completion accounts adjustment 477
Net proceeds (3,041)
Loss on sale of businesses 15,888
10. Preliminary announcement
This preliminary announcement, which has been prepared on a basis consistent
with the previous year, does not constitute statutory accounts within the
meaning of Section 240 of the Companies Act 1985. The announcement has been
agreed with the Group's auditors for release.
The information for the year ended 30 November 2002 is an extract from the
statutory accounts to that date which have been delivered to the Registrar of
Companies. Those accounts included an audit report which was unqualified and
which did not contain a statement under Section 237(2) or (3) of the Companies
Act 1985. The statutory accounts for the year ended 1 December 2003, upon which
the auditors have still to report, will be delivered to the Registrar following
the Company's annual general meeting.
This information is provided by RNS
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