Final Results
Porvair PLC
25 January 2005
For immediate release 25 January 2005
Porvair plc
Preliminary results for the year ended 30 November 2004
Porvair plc ('Porvair'), the specialist filtration and advanced materials Group,
today announces its preliminary results for the year ended 30 November 2004.
Highlights
• Operational benefits, following 2003 disposals, are now evident.
• Profit before taxation, exceptional items and goodwill increased by
60% to £2.6 m (2003: £1.6 m). Profit before taxation was £0.3m
(2003: continuing operations £2.2m loss).
• Gross revenue of £44.6m (2003: continuing operations £46.2m).
Revenue growth was suppressed by the weak dollar.
• Net debt reduced to £8.0 m (2003: £10.1 m).
• Core specialist filtration businesses performing well. Dollar
turnover at Selee Corporation was up 8% and operating profit growth
was significant. Turnover at Porvair Filtration Group was up 4%.
• Operating losses significantly reduced in Advanced Materials.
Porous metal sales were up 64% as commercial applications are
introduced. Fuel cell bipolar plate technology is meeting all key
milestones.
• Announced separately today: A $20m long term supply agreement with
US coal gasification operators, SG Solutions LLC.
Commenting on the results, John Morgan, Chairman, said:
'In 2004 Porvair started to show the benefits of the changes undergone in
previous years. The Group is profitable, cash generative and delivering
earnings growth. After several years of very high R&D investment, a range of
highly promising new products are in the process of being commercialised. 2005
has started well, and the Board is optimistic about new product potential and
the prospects for growth'.
For further information please contact:
Porvair plc 0207 466 5000 (today)
Ben Stocks, Chief Executive 01553 765 500 (thereafter)
Chris Tyler, Group Finance Director
Buchanan Communications 0207 466 5000
Charles Ryland / Ben Willey
Chairman's statement
It is a pleasure to report good results for Porvair in 2004. This is the first
full set of results for the Group after several years of transition, and it is
exciting to see the expected benefits now coming through. Following the
disposals of two subsidiaries in 2003, Porvair has shown improved return on
assets, cash generation and commercial focus. The significant spend on research
and development ('R&D') of recent years has opened up a range of promising
opportunities, and as some of these products move towards commercialisation,
their sales income is already starting to offset R&D expenditure.
The Board remains confident that Porvair's strategy and structure will deliver
long term value to shareholders. Our core specialist filtration businesses are
growing, profitable, cash generative and address market segments where
technology and know-how are critical. This is a solid base from which to
develop a range of larger opportunities, some nearer term and incremental in
nature, some longer term and potentially transformational.
Profits before tax, exceptional items and goodwill amortisation for 2004 were
£2.6m (2003: continuing operations £1.6m), a 60% improvement. Profit before
taxation was £0.3m (2003: continuing operations £2.2m loss). Porvair is cash
generative, and net borrowings, at £8.0m, were significantly lower than the
prior year (2003: £10.1m). Interest cover before goodwill amortisation was 6.5
times (2003: 5.2 times).
The weakness of the dollar has held back reported sales and profits. Reported
sales of £44.6m are lower than those reported for 2003 (2003: continuing
operations £46.2m) but had dollar rates remained constant growth would have been
2%. Operating profits were also held back by about £0.2m as margins associated
with dollar sales out of the UK came under pressure. The net effect was
somewhat mitigated however as we worked hard to grow US export sales. It is
also worth noting that turnover at the US Metals Filtration division was 8%
higher than 2003 before translation into Sterling. As most of our borrowings
are in US dollars, the weaker dollar reduced reported borrowings.
Our US Metals Filtration and Advanced Materials businesses have had a good year.
Selee, our Metals Filtration business, continued its recovery, growing its
operating profit significantly. Losses in our Advanced Materials division where
the Group spends a large percentage of its R&D expenditure were cut by 31%
before translation into Sterling. The Board was particularly pleased to note
that sales of our proprietary porous metals increased by 64% with several more
opportunities still in development, and that all the key milestones in our fuel
cell bipolar plate development were met.
On the whole our UK Microfiltration businesses performed well, and although
Porvair Sciences did not do as well as expected, the Porvair Filtration Group ('
PFG') posted sales growth of 4%. Reported profits before tax at PFG were flat
but were held back by lower margins on dollar denominated sales. Progress in
key developmental markets has been promising, and we are delighted, early in
2005, to have won a long term supply agreement with one of the leading
commercial US coal gasification operators.
Several issues relating to the disposal of our chemical businesses in late 2003
were dealt with during 2004. Our Canadian membrane outlet was closed and we
disposed of our minority equity position in Sympatex. As noted last year, the
first of three scheduled payments into the Porvair pension plan was made in
order to improve the plan's funding.
Earnings per share and dividend
Earnings per share before goodwill amortisation and exceptional items were 3.4p
(2003: continuing operations 4.4p). Although profit before tax, exceptional
items and goodwill amortisation increased by 60%, the effect of a tax charge
this year compared with a tax credit last year resulted in the adjusted earnings
per share falling. The loss per share was 2.0p (2003: 67.4p loss per share). A
final dividend of 1.0p (2003: 1.0p) is recommended for 2004.
Board and employees
Our staff have worked tirelessly in 2004, and on behalf of the Board, I would
like to thank them for their efforts. The year has also seen a number of Board
changes. Our Chief Executive, Ben Stocks, is now based in our US operations.
Our new Finance Director, Chris Tyler, is based in the UK and the Board is
delighted that he has settled into the role immediately and is already making a
significant contribution. Two new non-executive Directors have been appointed:
Charles Matthews and Andrew Walker. Both have had distinguished and broad
ranging careers and will bring a wealth of experience to Porvair. Michael Ost,
who was a Director of the Group for 6 years retires after the announcement of
these results. Michael has made a considerable contribution to Porvair and has
been a very valuable member of the Board. We wish him a long and happy
retirement.
Outlook
In 2004 Porvair started to show the benefits of the changes undergone in
previous years. The Group is profitable and cash generative. After several
years of very high R&D investment, a range of highly promising new products are
in the process of being commercialised. 2005 has started well, and the Board is
optimistic about new product potential and the prospects for growth.
Operating review
Porvair is a specialist filtration business whose proprietary micro-porous
materials offer both competitive strength and exciting commercial potential.
Our strategy is to specialise in a range of filtration markets where we find
challenging technical specifications; long product cycles; and growth. Porvair
brings expertise in porous and micro-porous materials - ceramics, metals,
carbons and polymers - to these markets. We seek to supply a diverse range of
filtration products and limit our exposure to any one market segment. We
supply, amongst others, the aluminium, foundry, aerospace, life science, nuclear
clean-up, print systems, high-purity liquid and fuel cell industries. No single
segment makes up more than 17% of our sales.
Furthermore, we seek to develop a range of significant growth opportunities by
capitalising on our market knowledge and technical expertise. We have invested
heavily in R&D in recent years in developing new materials and products that we
believe have the potential to transform Porvair. The opportunities we are
pursuing range in scale, risk and timeframe and are described in later
paragraphs.
Operations 2004
Metals Filtration
Porvair Selee ('Selee'), our US Metals Filtration business, continued its
recovery with dollar sales growing by 8% before translation into Sterling. The
benefits of plant investments made in prior years showed through with sales per
employee up 13% when compared with 2003. Plant efficiencies contributed both to
improved gross margins and lower working capital, which finished the year at
record low levels. Export sales grew 25%, helped by several key account gains
and a weaker dollar. As a result of these initiatives, operating profit before
goodwill amortisation grew to £0.9m (2003: £0.2m). In the second half of the
year Selee started to make demonstrable progress in its commercial strategy of
extending its market leadership in aluminium filtration and expanding its
specialist metals filtration scope. Sales of Selee's new proprietary metal
conditioning filter increased by 55% and new customer trial programmes continue.
Microfiltration
As reported at the half year, 2004 started slowly at Porvair Sciences ('PSL'),
and although trading improved as expected in the second half, it was not enough
to make up the early shortfall. After three record years for sales and profits,
sales declined in 2004 with a fall in cell culture media sales being the single
biggest contributor. Whilst this fully accounts for the £0.4m reduction in the
operating profits of the Microfiltration division in the year, the Board were
nonetheless encouraged that the core microplate business at PSL continued to
grow, new overseas distributors were appointed during the year and new products
are ready to be introduced early in 2005.
The Porvair Filtration Group ('PFG') posted a respectable result for the year
with sales growing by 4%. Given that over 20% of its sales are dollar
denominated this was a very creditable performance. Operating profit was flat
but would have grown by 8% had the dollar exchange rate remained the same as in
the prior year. Sales into the aerospace, bioscience, high purity liquid and
engineering segments were robust. Promisingly, enquiry levels are high and
project pipelines full. Management is focusing its development resources into
key segments including gasification, specialist aerospace, nuclear clean-up and
bioscience filtration devices. Progress in each of these areas has been
satisfactory in 2004. As noted at the half year, the Board sees gasification as
a particularly promising longer term prospect for the Group. This is a market
that is growing and in which Porvair has a good track record. We started to
market our expertise in this area more actively in 2004 and were particularly
pleased to secure a long term, multi-million dollar supply agreement with one of
the leading US coal gasification operators early in 2005.
Advanced Materials
Much of our R&D investment is undertaken at Porvair Advanced Materials ('PAM'),
formerly Porvair Fuel Cell Technology, which we have re-named this year to
reflect better the activities of this business. As some of the products under
development at PAM have moved towards commercialisation in 2004, operating
losses were cut by 31% before translation into Sterling.
PAM is involved in developing two new materials, one - microporous carbons - is
specific to fuel cells; the other - porous metals - has a wider range of
potential applications. Sales of porous metals increased 64% during 2004 as
commercial orders increased steadily and key projects moved ahead. Our
materials are now used commercially in both pressure vessel lining and gas
combustion applications. Gas combustion technology is having to adapt to
tighter emission control standards, and we believe our material is particularly
well suited to meet this significant emerging market need. We have made
substantial progress in electronic cooling applications and customer prototype
tests are well advanced. Diesel exhaust testing also continues positively. The
general level of enquiries for porous metal applications remains very high.
PAM's carbon materials are used to manufacture bipolar plates - a critical
component in proton exchange membrane fuel cell design. As we noted at the
half-year, the many thousands of plates made in 2003, which boosted our sales
last year, have provided extensive test data and our materials have been proven
to work well. In 2004 our goal was to develop a second generation of plates,
refine material composition and demonstrate low cost manufacture. All of this
was achieved during the year, and was confirmed in a series of successful
laboratory fuel cell tests. This opens the way to much lower unit costs and
significantly higher manufacturing efficiencies, the effects of both of these
can be seen in PAM's results where, even though sales are lower, operating
losses were significantly reduced compared with last year. As a result of these
technical steps forward the number of interested customers has recently
increased markedly. Our goal for 2005 is to get our low-cost moulded plates
into several customer prototypes.
Health, safety and the environment
Overall responsibility for health, safety and the environment rests with the
Group Board, and we publish our HS&E report on our website: www.porvair.com. 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.
Cash Flow
The Group generated good cash flow in 2004. Net cash inflow from operating
activities before exceptional cash items was £4.9m (2003: continuing operations
£3.3m). Net cash inflow from operating activities was £2.8m (2003: £2.1m).
Capital expenditure was £1.2m (2003: £1.8m). Net interest paid was £0.5m
(2003: £0.6m) and interest cover was 6.5 times (2003: 5.2 times). Net cash
inflow before financing, disposal proceeds of £0.5m (2003: £2.3m) and
exceptional cash payments of £2.1m (2003: £0.3m), was £2.6m (2003: cash outflow
£1.4m). Exceptional cash items relate to the settlement of a number of items
associated with business disposals undertaken in 2003. The Group's reduction in
net debt before exchange differences was £1.1m (2003: £0.6m). Currency
translation effects of our dollar denominated borrowings further reduced net
debt by £1.0m (2003:£1.1m), resulting in an overall reduction in net debt of
£2.1m (2003: £1.7m).
Shareholders' funds
Shareholders' funds of £30.5m were £1.7m lower than at 1 December 2003. Profit
after tax before goodwill amortisation was £1.7m. Goodwill amortisation reduced
shareholders' funds by £2.2m, the minority's interest was £0.2m, currency
exchange translation losses were £0.2m and dividends paid and proposed were
£0.7m.
Tax
The Group tax charge of £0.8m represents an effective tax rate of 33% on profits
before goodwill amortisation. The tax charge comprises current tax of £0.4m and
deferred tax of £0.4m. The Group carries a deferred tax asset in relation to
the losses in its US operations. A portion of the tax credits associated with
this year's losses have not been recognised.
Finance & Treasury policy
The treasury function at Porvair is managed centrally, under Board supervision.
It is not a profit centre and does not undertake speculative transactions. It
seeks to limit the Group's exposure to trading in currencies other than its
operations' local currency and to hedge its investments in currencies other than
Sterling. The Group does not hedge against the impact of exchange rate
movements on the translation profits and losses of overseas operations.
At the year end the Group had $19.0m of dollar borrowings which hedged
underlying US assets on the balance sheet of $19.4m. In addition, the Group has
a Euro 1.6m interest bearing debtor that was fully hedged by borrowings in
Euros.
The Group finances its operations by a combination of retained profits and short
and long term loans. Borrowings are principally at floating rate and
appropriate hedges are used to manage fluctuations in interest rates.
At the year end the Group had net borrowings of £8.0m (2003: £10.1m) comprising
gross borrowings of £11.1m offset by cash balances of £3.1m.
Pension schemes
The Group continues to support its closed defined benefit pension scheme in the
UK and provide access to a defined contribution scheme for its US employees and
more recent and new UK employees.
In the exceptional charges arising in 2003 the Group provided for additional
cash payments to the defined benefit pension scheme. During the year the Group
made a £400,000 payment and expects to make two further payments of £550,000
each in March 2005 and March 2006.
Accounting changes
The Company will be required to adopt International Financial Reporting
Standards ('IFRS') with effect from 1 December 2005. An initial assessment of
the impact on the Group's financial statements and underlying processes has been
made. An implementation plan is being prepared to enable the Group to report
under IFRS from 1 December 2005.
Group profit and loss account
For the year ended 30 November
2004 2003 2003 2003
Continuing Discontinued
operations operations
£'000 £'000 £'000 £'000
Turnover 44,632 46,167 18,042 64,209
Cost of sales (30,466) (30,000) (16,493) (46,493)
Gross profit 14,166 16,167 1,549 17,716
Distribution costs (485) (795) (695) (1,490)
Research & development expense (3,181) (4,661) (1,174) (5,835)
Exceptional item - (1,525) - (1,525)
Administrative - other (10,161) (11,125) (2,979) (14,104)
Total administrative expenses (13,342) (17,311) (4,153) (21,464)
Group operating profit/(loss) before
share of profit in associated
undertaking 339 (1,939) (3,299) (5,238)
Share of operating profit in
associated undertaking 454 159 - 159
Total Group operating profit/(loss) 793 (1,780) (3,299) (5,079)
Exceptional items - - (23,033) (23,033)
Interest payable (net) (460) (379) - (379)
Profit/(loss) on ordinary activities
before taxation 333 (2,159) (26,332) (28,491)
Profit/(loss) on ordinary activities
before taxation 333 (2,159) (26,332) (28,491)
Add back goodwill amortisation 2,224 2,237 53 2,290
Add back exceptional items - 1,525 23,033 24,558
Adjusted profit/(loss) on ordinary
activities before exceptional items,
goodwill amortisation and taxation 2,557 1,603 (3,246) (1,643)
Tax on profit/(loss) on ordinary
activities (833) 4,095
Loss on ordinary activities after
taxation (500) (24,396)
Equity minority interests (249) (394)
Loss attributable to shareholders (749) (24,790)
Dividends (736) (1,251)
Deficit for the financial period (1,485) (26,041)
Loss per share (basic and diluted) (2.0)p (67.4)p
Dividend per share 2.0p 3.4p
Reconciliation of movements in equity shareholders' funds
For the year ended 30 November
2004 2003
£'000 £'000
Loss attributable to shareholders (749) (24,790)
Dividends (736) (1,251)
Deficit for the financial period (1,485) (26,041)
Exchange differences (239) (137)
Net reduction in equity shareholders' funds (1,724) (26,178)
Opening equity shareholders' funds 32,196 58,374
Closing equity shareholders' funds 30,472 32,196
Statement of total recognised gains and losses
For the year ended 30 November
2004 2003
£'000 £'000
Loss attributable to shareholders (749) (24,790)
Exchange differences (239) (137)
Total losses recognised in the period (988) (24,927)
Group balance sheet
At 30 At 1
November December
2004 2003
£'000 £'000
Fixed assets
Intangible assets 27,785 30,204
Tangible assets 8,241 9,277
Investment in associated undertaking - 2,453
36,026 41,934
Current assets
Stocks 5,897 7,088
Debtors falling due after one year 3,071 2,624
Debtors falling due within one year 8,263 9,039
11,334 11,663
Cash at bank and in hand 3,047 3,980
20,278 22,731
Creditors: amounts falling due in within one year (6,753) (9,001)
Net current assets 13,525 13,730
Total assets less current liabilities 49,551 55,664
Creditors: amounts falling due after more than one year (11,052) (14,081)
Provisions for liabilities and charges (2,508) (4,117)
35,991 37,466
Capital and reserves
Called up share capital 736 736
Share premium account 28,679 28,679
Other reserves (1,100) (861)
Profit and loss account 2,157 3,642
Total equity shareholders' funds 30,472 32,196
Equity minority interests 5,519 5,270
35,991 37,466
Group cash flow statement
For the year ended 30 November
2004 2003
£'000 £'000
Net cash inflow from operating activities 2,811 2,054
Dividend from associated undertaking 161 129
Returns on investments and servicing of finance
Interest received 112 65
Interest paid (635) (642)
(523) (577)
Taxation
UK corporation tax refunded/(paid) 18 (194)
Overseas tax refunded/(paid) (18) 1,107
- 913
Capital expenditure
Purchase of tangible fixed assets (1,228) (1,806)
Sale of tangible fixed assets 57 8
(1,171) (1,798)
Acquisitions and disposals
Disposal of subsidiaries assets and liabilities - 2,304
Sale of associated undertaking 526 -
526 2,304
Equity dividends paid (736) (2,467)
Net cash inflow before financing 1,068 558
Financing
Loans repaid (7) (41)
Increases/(decreases) in borrowings (1,820) 339
(1,827) 298
(Decrease)/increase in cash in the period (759) 856
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in year (759) 856
(Increase)/decrease in borrowings 1,827 (298)
Change in net debt from cash flows 1,068 558
Exchange differences 1,035 1,122
Movement in net debt in year 2,103 1,680
Opening net debt (10,108) (11,788)
Closing net debt (8,005) (10,108)
Turnover and segmental analyses
The geographical analyses of the group's turnover and segmental analyses of
turnover, operating profit/(loss) and net assets are set out below:
2004 2003
By destination By origin By destination By origin
£'000 £'000 £'000 £'000
Turnover
United Kingdom 12,707 24,121 15,277 24,157
Continental Europe 5,735 - 5,286 -
Americas 21,036 20,511 22,513 22,010
Asia 3,526 - 1,801 -
Australasia 665 - 553 -
Africa 963 - 737 -
Continuing operations 44,632 44,632 46,167 46,167
Discontinued operations - - 18,042 18,042
44,632 44,632 64,209 64,209
2004 2003
£'000 £'000
Turnover
Metals Filtration 19,387 20,020
Microfiltration 24,121 24,157
Advanced Materials 1,124 1,990
Continuing operations 44,632 46,167
Discontinued operations - 18,042
44,632 64,209
Operating profit/(loss) 2004 2003
Operating
Operating profit/ Operating
profit/(loss) Operating (loss) profit/(loss)
before profit/(loss) before after
goodwill Goodwill after goodwill goodwill Goodwill goodwill
amortisation amortisation amortisation amortisation amortisation amortisation
£'000 £'000 £'000 £'000 £'000 £'000
Metals
Filtration 855 (1,213) (358) 242 (1,226) (984)
Microfiltration 3,487 (1,011) 2,476 3,900 (1,011) 2,889
Advanced
Materials (1,325) - (1,325) (2,160) - (2,160)
Exceptional item - - - (1,525) - (1,525)
Operating profit
/(loss) of
continuing
operations 3,017 (2,224) 793 457 (2,237) (1,780)
Discontinued
operations - - - (3,246) (53) (3,299)
3,017 (2,224) 793 (2,789) (2,290) (5,079)
Net assets As at 30 November 2004 As at 1 December 2003
Net assets Net assets
Before including Before including
goodwill Goodwill goodwill goodwill Goodwill goodwill
£'000 £'000 £'000 £'000 £'000 £'000
Metals Filtration 6,252 12,733 18,985 7,488 14,141 21,629
Microfiltration 8,686 15,052 23,738 9,268 16,063 25,331
Advanced Materials 809 - 809 1,154 - 1,154
15,747 27,785 43,532 17,910 30,204 48,114
Long term related
party loan 1,112 1,110
Equity investment
in associated
undertaking - 1,343
Deferred
consideration 1,988 1,000
Discontinued
operations (2,349) (4,586)
Taxation 81 961
Dividend payable (368) (368)
Net borrowings (8,005) (10,108)
35,991 37,466
Reconciliation of operating profit/(loss) to net cash flow from operating
activities
Continuing Discontinued
2004 operations operations 2003
£'000 £'000 £'000 £'000
Total group operating profit/(loss) before
share of associated undertaking and exceptional
items 339 (414) (3,299) (3,713)
Goodwill amortisation 2,224 2,237 53 2,290
Depreciation 1,654 1,700 1,609 3,309
Loss on sale of fixed assets 4 53 - 53
(Increase)/decrease in stocks 359 (533) 483 (50)
(Increase)/decrease in debtors 963 144 2,036 2,180
(Increase)/decrease in creditors (629) 91 (1,771) (1,680)
Net cash inflow/(outflow) from operating
activities before exceptional items 4,914 3,278 (889) 2,389
Cash outflow relating to exceptional items (2,103) - (335) (335)
Net cash inflow/(outflow) from operating
activities 2,811 3,278 (1,224) 2,054
Additional notes
1. Exchange rates
Exchange rates for the major currencies during the period were:
Average rate to Average rate Closing rate at 30 Closing rate at Closing rate at
30/11/04 to 30/11/03 /11/04 1/12/03 30/11/02
US dollar 1.8134 1.6225 1.9115 1.7199 1.5560
Canadian dollar 2.3725 2.3089 2.2729 2.2357 2.4376
Euro 1.4697 1.4607 1.4382 1.4348 1.5642
2. Dividends
The Board has recommended a final dividend of 1.0p per share (2003: 1.0p) to be
paid on 19 April 2005 to shareholders on the register at the close of business
on 29 March 2005. This makes a total dividend for the year of 2.0p (2003: 3.4p)
3. Nature of financial statements
These financial statements are not the full financial statements for the Group.
The abridged profit and loss account and balance sheet for the year to 1
December 2003 is an extract from the full accounts for that year which have been
delivered to the Registrar of Companies; the report of the auditors on those
accounts was unqualified. The full financial statements for this year, on which
the auditors have reported without qualification, have not yet been delivered to
the Registrar of Companies. A full copy of the financial statements will be
delivered to the Registrar following the Company's annual general meeting.
4. Annual general meeting
The Company's annual general meeting will be held on Tuesday 5 April at Brampton
House, Bergen Way, King's Lynn.
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