Interim Results

Porvair PLC 29 June 2004 FOR IMMEDIATE RELEASE 29 June 2004 Contacts: Porvair plc today 07768 553 188 Ben Stocks, Chief Executive at all other times 01553 765 500 Buchanan Communications 0207 466 5000 Charles Ryland / Catherine Miles PORVAIR plc ('Porvair') Interim Results for the six months ended 31st March 2004 Porvair, the specialist filtration Group, announces its interim results for the six months ended 31st March 2004. KEY POINTS • Profit before tax and goodwill amortisation rose substantially to £0.84m (2003: £0.21m). • Taking out the discontinued businesses, and presenting the results on a like-for-like basis, operating profits improved 11% during the period. • Net borrowings at £11.2m, lower than same point last year (2003: £12.4m), and further reductions expected during the remainder of the year. • Selee continued to recover its operating margins and generated operating profit 35% better than 2003. • Microfiltration businesses performed well with operating profits before goodwill amortisation up 7.5%. • Longer term new materials opportunities - in fuel cells, coal gasification and porous metals - are progressing to plan. John Morgan, Chairman, said: '2004 has started well. The benefits of the changes undergone in 2003 are showing through. Our specialist filtration businesses are delivering good results, and we expect them to continue to do so. Porvair in 2004 has the focus, sound financial base and technical know-how to pursue an exciting range of opportunities. We are making good progress in this pursuit, and the Board looks forward to the rest of 2004 with optimism.' Chairman's statement It is a pleasure to report good results for Porvair plc for the 6 months to 31st May 2004. This is the first set of results for the new Group following several years of change, during which the Group has sought to: • develop high quality specialist filtration businesses • exploit proprietary materials technologies, particularly those with applications in high growth markets • dispose of businesses not involved in specialist filtration. Following this period of change, the outlook for 2004 and beyond is more settled. Porvair is a specialist filtration Group whose proprietary microporous materials offer both competitive strength and exciting commercial potential. Our specialist filtration businesses are a good base from which to pursue a range of growth opportunities, some near term and incremental; some longer term, and potentially transformational. The Board is confident that this strategy, which combines sensible management of current operations with focussed investment in high growth opportunities is a good one, and will deliver long-term value for shareholders. The results for the first half of 2004 show the benefits of the changes undertaken in 2003. Profit before tax and goodwill amortisation rose substantially to £0.84m. (2003: £0.21m). Taking out the discontinued businesses, and presenting the results on a like-for-like basis, operating profits have improved 11% during the period under review. After the amortisation of goodwill the Group will report statutory losses before tax of £0.27m (2003: £0.94m). Net borrowings were £11.2m, lower than at the same point last year (31 May 2003: £12.4m). Interest is covered is 4.4 times before goodwill amortisation. The mid-year represents a high point for net borrowings, and the Board expects further reductions during the remainder of the year. In the first six months of 2004 the UK based Microfiltration businesses have performed well with operating profits before goodwill amortisation up 7.5%. Revenue at the Porvair Filtration Group has been 10% greater than last year, with encouraging demand in most market segments. After three excellent years, Porvair Sciences had a slow start to 2004, but by the end of the period was again trading strongly. Selee, our US metals filtration business, continues to recover its operating margins, generating operating profit 35% better than 2003. On a same-currency basis, Selee is once again showing modest sales revenue growth. Our new materials developments are progressing to plan. Commercial applications and repeat orders for our proprietary porous metals are building steadily and sales of these materials were well ahead of last year. The very large one-off order for fuel cell bipolar plates we fulfilled in 2003 did not repeat in 2004, but nevertheless we still made a significant number of plates for several customers. Importantly, we met first-half technical milestones in the programme to specify low-cost manufacturing processes for our fuel cell bipolar plate. As outlined in the Operating Review, these are only two of a number of opportunities about which the Board is excited. The Group continues to invest significant R&D resources in these areas, and whilst this investment holds back group profits, the Board believes that the scale of the opportunities fully justifies the investments made. As previously reported to shareholders the Board reviewed its dividend policy in late 2003. A final dividend of 1.0p was declared for 2003, and the Board have declared an interim dividend of 1.0p per share for 2004 (2003 interim: 2.4p). Earnings per share before goodwill amortisation were 1.0p. The basic earnings per share for the period was 1.7p loss (2003: 3.0p loss). Outlook 2004 has started well. The benefits of the changes undergone in 2003 are showing through. Our specialist filtration businesses are delivering good results, and we expect them to continue to do so. Porvair in 2004 has the focus, sound financial base and technical know-how to pursue an exciting range of opportunities. We are making good progress in this pursuit, and the Board looks forward to the rest of 2004 with optimism. Operating Review Porvair Selee continued its recovery showing volume growth - masked in these results by the translation effect of the US dollar - and 35% operating profit improvement when compared to the first half of 2003. At the start of the year raw material price increases were passed through to customers; and incremental operational improvements, particularly relating to manufacturing yields, have also helped profitability. Improving margins have been further helped by better demand in several metals markets, notably aluminium and superalloys. Engineered Ceramics, a subsidiary acquired in 2001, has had a record first half to 2004, and is showing the benefits of combining its technical expertise with that of the engineers and sales team at Selee. The Porvair Filtration Group ('PFG') has delivered 10% revenue growth in the first half of 2004, and operating profits have improved by 11%. Demand for aerospace, high purity liquid and industrial process filters have all been strong, and we have won an encouraging series of mid-sized long term contracts in these segments. The nature and spread of the filtration segments in which PFG participates makes the business relatively robust, with margins having remained healthy since this unit was created in 2001. After three record years for sales and profits at Porvair Sciences ('PSL'), 2004 started more slowly. This was anticipated and reduced profits in this business during the period. However, margins remain robust, and demand started to pick up in the second quarter. The core microplate business continues to grow, and international distribution network continues to expand. These three businesses offer the Group a sound financial and technical base from which to pursue a range of promising growth opportunities. Some of these are nearer term and incremental in nature; several are longer term and potentially transformational. The first category would include proprietary filters at Selee that both filter and condition molten metals; it would include aerospace filtration assemblies, functional porous plastics and filters for high purity liquids at PFG; and proprietary functional microplates at PSL. These all use current materials technology and in each case are commercial products we are already selling into markets we expect to grow. Our biggest opportunities are longer term in nature, but of significant scale: Fuel cell components. Porvair is developing high specification bipolar plates using proprietary carbon technology. Bipolar plates are critical components in PEM fuel cells. Our plates are highly conductive, lightweight, flexible, resistant to corrosion and microporous. These attributes make Porvair's bipolar plates highly competitive, and unique. In the first half of 2004 we have made over 10,000 plates - a significant number in this market. As expected, this was fewer than last year, when we experienced very high demand for a prototype vehicular fuel cell from a major customer, United Technologies Fuel Cells ('UTCFC'). We learned two things from this 2003 activity: firstly, our plates perform well in challenging on-the-road tests, notably in extreme climate conditions; secondly, that we needed to refine our process to facilitate low-cost manufacture. At the end of 2003 therefore we agreed a development plan with UTCFC and this work, partially funded by them, began in early 2004. Milestones for the first half have been achieved and objectives for the next six months agreed. By early in 2005 we expect to have finalised plate compositions and have demonstrated low cost manufacturing processes and yield capabilities. We would expect plates made by these methods to be incorporated into customer prototype programmes during 2005. Porous and Microporous metals. Porvair has proprietary technology in the manufacture of a wide range of porous metals. We are able to control density, porosity and shape, and adapt our process to almost any metal alloy at relatively low cost. The Board believes this expertise to be unique, and sees many opportunities to build long term, sustainable applications for these materials. In 2004 we have continued to experience strong demand for customer samples and prototypes. We have also started to see repeat orders for commercial applications, and expect these to continue in the second half. In this regard pressure vessel linings and burner plates have performed well. Still in development, but of particular interest have been cooling devices for electronics, where computer speed is constrained by heat. Customers ask to sample porous metal materials for a surprisingly wide range of applications, and in addition to those segments already mentioned, emission control devices, water treatment processes, hydrolysis components and general industrial applications are at a less advanced stage, but promising nevertheless. Hot gas filters for coal gasification. The Porvair Filtration Group has for several years been supplying hot gas filters for coal gasification. This application is expected to grow as coal-gas production plants are installed around the world. This process converts coal into a hydrogen-rich gas stream. It allows coal deposits to be used in an environmentally cleaner manner than conventional systems. Issues of energy security and environmental compliance are driving demand, particularly in the USA. Porvair has a strong position in those systems that use hot gas filtration. Our products have been demonstrated to work over an extended period. Lead times in these markets are of course long, and the Board does not expect to see significant sales starting before 2006, however this is an excellent opportunity, and one the Porvair Filtration Group is actively pursuing. John Morgan Chairman 29 June 2004 Consolidated profit and loss account For the six months ended 31 May 2004 (unaudited) Group Contin Discont Group Contin Discont Group -uing -inued -uing -inued 31 May opera opera 31 May opera opera 1 Dec -tions -tions -tions -tions 2004 2003 2003 Note £'000 £'000 £'000 Turnover 1, 1(i) 21,794 23,284 9,925 33,209 46,167 18,042 64,209 Group operating loss before share of profit in associated undertaking (80) (176) (573) (749) (1,939) (3,299) (5,238) Share of operating profit in associated 60 25 - 25 159 - 159 undertaking Total Group operating loss 1(ii) (20) (151) (573) (724) (1,780) (3,299) (5,079) Exceptional loss on part disposal in subsidiary undertakings - - (23,033) (23,033) Interest payable (net) (251) (216) - (216) (379) - (379) Loss on ordinary activities before taxation (271) (367) (573) (940) (2,159) (26,332) (28,491) Loss on ordinary activities before taxation (271) (367) (573) (940) (2,159) (26,332) (28,491) Add back goodwill amortisation 1,112 1,122 26 1,148 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 841 755 (547) 208 1,603 (3,246) (1,643) Tax on loss on ordinary activities (239) (45) 4,095 Loss on ordinary activities after taxation (510) (985) (24,396) Equity minority interests (131) (113) (394) Loss attributable to shareholders (641) (1,098) (24,790) Dividends (368) (883) (1,251) Retained loss for the financial period (1,009) (1,981) (26,041) Earnings/(losses) per share - basic and diluted 2 (1.7)p (3.0)p (67.4)p Dividend per share 3 1.0p 2.4p 3.4p Reconciliation of movements in equity shareholders' funds For the six months ended 31 May 2004 (unaudited) Group Group Group 31 May 31 May 1 Dec 2004 2003 2003 £'000 £'000 £'000 Loss attributable to shareholders (641) (1,098) (24,790) Dividends (368) (883) (1,251) Retained loss for the financial period (1,009) (1,981) (26,041) Exchange differences (59) 30 (137) Net reduction in equity shareholders' (1,068) (1,951) (26,178) funds Opening equity shareholders' funds 32,196 58,374 58,374 Closing equity shareholders' funds 31,128 56,423 32,196 Statement of total recognised gains and losses For the six months ended 31 May 2004 (unaudited) Loss attributable to shareholders (641) (1,098) (24,790) Exchange differences (59) 30 (137) Total losses recognised in the (700) (1,068) (24,927) period Consolidated balance sheet As at 31 May 2004 (unaudited) Group Group Group 31 May 2004 31 May 2003 1 Dec 2003 Note £'000 £'000 £'000 Fixed Assets Intangible assets 28,969 32,086 30,204 Tangible assets 8,829 19,966 9,277 Investment in associated undertaking 2,440 2,495 2,453 40,238 54,547 41,934 Current Assets Stocks 6,152 15,161 7,088 Debtors falling due after one 1,546 3,443 2,624 year Debtors falling due within one 10,555 16,826 9,039 year 12,101 20,269 11,663 Cash at bank and in hand 1,860 2,139 3,980 20,113 37,569 22,731 Creditors Amounts falling due within one (7,977) (13,802) (9,001) year Net current assets 12,136 23,767 13,730 Total assets less current 52,374 78,314 55,664 liabilities Creditors Amounts falling due after more than one year (13,065) (14,515) (14,081) Provisions for liabilities and charges (2,780) (2,387) (4,117) 36,529 61,412 37,466 Capital and reserves Called up share capital 736 736 736 Share premium account 28,679 28,679 28,679 Other reserves (920) 4,359 (861) Profit and loss account 2,633 22,649 3,642 Total equity shareholders' funds 31,128 56,423 32,196 Equity minority interests 5,401 4,989 5,270 1 (iii) 36,529 61,412 37,466 Consolidated cash flow statement For the six months ended 31 May 2004 (unaudited) Group Group Group 31 May 2004 31 May 2003 1 Dec 2003 Note £'000 £'000 £'000 Net cash inflow/(outflow) from operating activities 4 (1,072) 903 2,054 Dividend from associated undertaking - - 129 Returns on investments and servicing of finance Interest received 64 42 65 Interest paid (41) (258) (642) 23 (216) (577) Taxation UK corporation tax refunded/(paid) 372 - (194) Overseas tax refunded/(paid) - 1,013 1,107 372 1,013 913 Capital Expenditure Purchase of tangible fixed assets (785) (1,262) (1,806) Sale of tangible fixed assets - - 8 (785) (1,262) (1,798) Acquisitions and disposals Disposal of subsidiaries assets and - - 2,304 liabilities - - 2,304 Equity dividends paid (368) (1,583) (2,467) Net cash inflow/(outflow) before (1,830) (1,145) 558 financing Financing Loans repaid - - (41) Increases/(decreases) in borrowings (174) 72 339 (174) 72 298 (Decrease)/increase in cash in the 5 (2,004) (1,073) 856 period Notes to the accounts 1. Turnover and segmental analyses The geographical analyses of the group's turnover, operating profit/(loss) and net assets are set out below: Six months ended Six months ended Year ended 31 May 2004 31 May 2003 1 Dec 2003 By By By By By By destination origin destination origin destination origin £'000 £'000 £'000 £'000 £'000 £'000 Turnover United Kingdom 6,145 11,726 7,509 11,321 15,277 24,157 Continental Europe 2,722 - 2,776 - 5,286 - Americas 10,363 10,068 11,487 11,963 22,513 22,010 Asia 1,652 - 897 - 1,801 - Australasia 306 - 342 - 553 - Africa 606 - 273 - 737 - Continuing group 21,794 21,794 23,284 23,284 46,167 46,167 Discontinued operations - - 9,925 9,925 18,042 18,042 21,794 21,794 33,209 33,209 64,209 64,209 Six months ended Six months ended Year ended 31 May 2004 31 May 2003 1 Dec 2003 £'000 £'000 £'000 Segmental analyses (i) Turnover Metals Filtration 9,533 10,375 20,020 Microfiltration 11,726 11,321 24,157 Fuel Cells 535 1,588 1,990 Continuing group 21,794 23,284 46,167 Discontinued operations - 9,925 18,042 21,794 33,209 64,209 Six months ended Six months ended Year ended 31 May 2004 31 May 2003 1 Dec 2003 ii) Operating profit/(loss) Operating Operating Operating Operating Operating Operating profit/ profit/ profit/ profit/ profit/ profit/ (loss) (loss) (loss) (loss) (loss) (loss) before after before after before after goodwill goodwill goodwill goodwill goodwill goodwill £'000 £'000 £'000 £'000 £'000 £'000 Metals Filtration 322 (286) 196 (419) 242 (984) Microfiltration 1,472 968 1,370 863 3,900 2,889 Fuel Cells (702) (702) (595) (595) (2,160) (2,160) Exceptional item - - - - (1,525) (1,525) Operating profit/(loss) of continuing group 1,092 (20) 971 (151) 457 (1,780) Discontinued operations - - (547) (573) (3,246) (3,299) 1,092 (20) 424 (724) (2,789) (5,079) As at 31 May 2004 As at 31 May 2003 As at 1 December 2003 iii) Net assets Before Net Before Net Before Net goodwill assets goodwill assets goodwill assets including including including goodwill goodwill goodwill £'000 £'000 £'000 £'000 £'000 £'000 Metals Filtration 7,825 21,236 8,813 23,666 7,488 21,629 Microfiltration 9,595 25,153 8,517 25,084 9,268 25,331 Fuel Cells 1,063 1,063 2,388 2,388 1,154 1,154 18,483 47,452 19,718 51,138 17,910 48,114 Associated undertaking 2,440 2,495 2,453 Discontinued operations (2,027) 24,267 (3,586) Taxation 237 (3,203) 961 Dividend payable (368) (883) (368) Net borrowings (11,205) (12,402) (10,108) 36,529 61,412 37,466 2. Earnings/(losses) per share Six months ended Six months ended Year ended 31 May 2004 31 May 2003 1 Dec 2003 Losses Per share Losses Per share Losses Per share Losses per share - basic and diluted On shares in issue of 36,803,011 (2003: 36,803,011) (£641,000) (1.7)p (£1,098,000) (3.0)p (£24,790,000) (67.4)p Add back: Goodwill amortisation £1,008,000 2.7p £1,044,000 2.9p £2,082,000 5.7p (excluding minority interests' share) Earnings/(losses) per share before goodwill amortisation £367,000 1.0p (£54,000) (0.1)p (£22,708,000) (61.7)p 3. Dividends Six months ended Six months ended Year ended 31 May 2004 31 May 2003 1 Dec 2003 Per share £'000s Per share £'000s Per share £'000s Interim dividend 1.0p 368 2.4p 883 2.4p 883 Final dividend - - - - 1.0p 368 1.0p 368 2.4p 883 3.4p 1,251 The interim dividend of 1.0p per share for the six months to 31 May 2004 will be paid on 17 September 2004 to members on the register on 27 August 2004. 4. Reconciliation of operating loss to net cash flow from operating activities Six months ended Six months ended Year ended 31 May 2004 31 May 2003 1 Dec 2003 £'000 £'000 £'000 Total Group operating loss (80) (176) (414) Goodwill amortisation 1,112 1,122 2,237 Depreciation 859 868 1,700 Loss on sale of fixed assets 24 - 53 (Increase)/decrease in stocks 320 (700) (533) (Increase)/decrease in debtors (1,304) (1,342) 144 Increase/(decrease) in creditors (590) 1,558 91 Net cash inflow from operating activities before exceptional items 341 1,330 3,278 Net cash outflow from operating activities of discontinued operations - (339) (889) Exceptional items (1,413) (88) (335) Net cash inflow/(outflow) from operating activities (1,072) 903 2,054 During the period the exceptional expenditure comprised £477,000 of final payments in relation to the disposal transaction and £936,000 of other payments from exceptional provisions 5. Reconciliation of net cash flow to movement in net borrowings Six months ended Six months ended Year ended 31 May 2004 31 May 2003 1 Dec 2003 £'000 £'000 £'000 Increase/(decrease) in cash in the year (2,004) (1,073) 856 Decrease/(increase) in borrowings 174 (72) (298) Change in net borrowings from cash flows (1,830) (1,145) 558 Exchange differences 733 531 1,122 Movements in net borrowings in year (1,097) (614) 1,680 Opening net borrowings (10,108) (11,788) (11,788) Closing net borrowings (11,205) (12,402) (10,108) 6. Analysis of net borrowings 2 December 2003 Cash flow Exchange 31 May 2004 £'000 £'000 £'000 £'000 Cash in hand and at bank 3,980 (2,004) (116) 1,860 Overdrafts - - - - (2,004) Borrowings due after 1 year (14,081) 167 849 (13,065) Borrowings due within 1 year (7) 7 - - 174 Total (10,108) (1,830) 733 (11,205) 7. Exchange rates Exchange rates for the major currencies used during the period were:- Average rate Average rate Average rate Closing rate Closing rate to 31/5/04 to 31/5/03 to 1/12/03 at 31/5/04 at 1/12/03 US dollar 1.7980 1.5944 1.6225 1.8334 1.7199 Canadian dollar 2.3946 2.3778 2.3089 2.5019 2.2357 Euro 1.4697 1.4830 1.4607 1.5014 1.4348 8. Statutory group accounts The interim financial statements have been prepared in accordance with applicable accounting standards. The accounting policies applied are those set out in the Annual Report and Accounts for the year ended 1 December 2003. The interim financial statements do not constitute statutory accounts and are unaudited, although they have been reviewed by the auditors. The abridged accounts for the year ended 1 December 2003 set out above are an extract from the latest statutory accounts for the Group which have been delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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