Final Results

Porvair PLC 24 January 2001 FOR IMMEDIATE RELEASE 24 January 2001 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 30 NOVEMBER 2000 Porvair, the innovative advanced materials group, announces preliminary results for the year ended 30 November 2000. KEY POINTS * Profit before tax and goodwill amortisation up 43% to £6.0m (1999 : £4.2m). * Filtration : strong performance with operating profit up 60% to £4.3m (1999 : £2.7m) - market focus moved towards higher margin areas. * Consumer businesses : operating profits up 15% to £2.5m (1999 : £2.2m). * Porvair Fuel Cell Technologies : exciting technical progress in 2000, prompting substantial increase in R&D expenditure from the start of 2001. * Final dividend up 5% at 4.3p per share (1999 : 4.1p), making a total for 2000 of 6.7p per share (1999 : 6.4p) - dividend cover increased to 2.4 times. John Morgan, Chairman, said: 'Porvair is at an exciting point in its development after further strong progress made in 2000. The existing businesses are performing well and we have an attractive medium term opportunity in the development of materials for fuel cell programmes. 2001 will see a significant investment in development resources to pursue this opportunity as we attempt to capitalise on our progress to date.' Chairman's Statement I am delighted to report that profit before tax and goodwill amortisation increased by 43% to £6.0m (1999 : £4.2m). This result was delivered by following a strategy combining the development of materials technology with continuous improvement in operational efficiency. The trading environment was mixed; there was a buoyant US economy, that helped drive a very strong performance at Selee, whilst the UK based businesses had to cope with the effects of strong sterling. Overall though it is pleasing that sales were ahead by 5% at £65.6m (1999 : £62.5m). Earnings per share before goodwill amortisation increased to 16.4p (1999 : 12.6p). However, the prior year figure benefited from a low effective tax rate; the comparable figure, on a similar 30% tax rate as in 2000, gives a comparative earnings per share of 11.5p. Accordingly, the increase in earnings per share on this basis is 43%, in line with the profit increase detailed above. The Board is recommending a final dividend of 4.3p per share (1999 : 4.1p) which increases the total for the year by 5% to 6.7p per share (1999 : 6.4p). The total dividend is covered 2.4 times by earnings. Ernie Bostwick retired from the Board on 30 November after serving as a non-executive director since 1988. Ernie made a significant contribution to Porvair's development as a public company and its growth during that period. As we move forward his contribution and personality will be greatly missed. We wish him well in his retirement. On behalf of the Board, I also want to thank all of our employees for their continued hard work and commitment to Porvair. Their efforts are enabling us to make considerable progress across all areas of the business. Porvair is at an exciting point in its development after further strong progress made in 2000. The existing businesses are performing well and we have an attractive medium term opportunity in the development of materials for fuel cell programmes. 2001 will see a significant investment in development resources to pursue this opportunity as we attempt to capitalise on our progress to date. John Morgan, Chairman 24 January 2001 Operating review Group Porvair is a materials science company. The strategy is to identify and develop materials technologies that display clear technical edge, strong market position and significant opportunities for profitable growth. Our materials science expertise is focused in four areas : * Advanced Ceramics * Sintered metals and plastics * Microporous acrylics * Polyurethane membranes A brief synopsis of the Group's activities can be found at the end of this statement, or at www.porvair.com. Operational performance 2000 2000 was a good year for Porvair. Profit before tax and goodwill amortisation increased 43% to £6m, cash and operational controls raised operating profit margins 32% to 10.5% and excellent progress was made in our exciting new product development programme. The filtration division performed well in 2000. New product driven sales growth increased sales 9% to £35.9m (1999 : £32.8m), and operating profits before goodwill amortisation rose 60% to £4.3m (1999 : £2.7m). Selee, our advanced ceramic business, was a key part of this strong performance. Demand for its core molten metal filters was robust and we made good progress with the development of new products. Through both technical licences and our own development programme, we are moving Selee's market focus into higher margin areas. Aluminium consumables, high value metals filtration and certain investment casting products have been identified as segments in which our technical expertise will give us competitive edge and promote profitable growth. It is encouraging to see the benefits of this coming through in the results, with operating margins in 2000 improving 23% over 1999. Our sintered materials businesses have performed ahead of expectation for 2000, and are experiencing growth in particular in the US. The strength of sterling has made UK markets more competitive during the year but we are encouraged that operating margins have been sustained at 24%. In the microporous acrylic business, which services the needs of the global ceramic industry, we have continued the recovery started last year. In the second half of 2000 we launched our technology for the semi-automatic manufacture of lavatories, and have already received orders for the system. We have been able to patent several critical elements of this development. The product, known as the 'PC570 bowl', has performance characteristics well ahead of any competitive designs and offers customers a substantial improvement in production efficiency. This product represents a significant step forward and the sanitaryware market's response has been encouraging. The consumer businesses develop, manufacture and market polyurethane membranes. As previously advised at the half year, the expectation for 2000 was to strengthen margins against a steady level of sales, and it is pleasing to report an operating profit improvement before goodwill amortisation of 15% to £2.5m (1999 : £2.2m). Sales, as expected, remained similar to 1999 although Porelle, the waterproof/breathable product range, has again made progress in the year. A small part of this business is the proprietary Sealskinz waterproof sock. For the autumn season we launched a second generation product building on our patent protection. Sales through both retail channels and the www.sealskinz.com website to date have been strong. During the year we strengthened our Permair leather business by consolidating operations in North America and launched product ranges aimed at Children's and occupational footwear applications. These products are now selling well for the 2001 retail season. Porvair Fuel Cell Technologies As mentioned at the interim announcement, during 2000 we drew together the various activities concerned with fuel cells componentry under one technical and marketing umbrella. This unit - Porvair Fuel Cell Technologies - is growing rapidly, both in its commercial activity and its technical resource requirements. Our materials - both metallic and ceramic - solve a number of problems encountered by fuel cell developers, particularly in heat exchange, catalyst substrate, emissions and moisture control applications. Although most commentators do not expect fuel cell technology to become commercial for several years, this market is a very exciting prospect for Porvair. We are working with most of the major fuel cell development companies, and have embarked on an ambitious technical programme that will position us well as a specialist supplier and manufacturer of fuel cell and fuel reformer components as the market develops. This opportunity has prompted an evolutionary change in operational strategy for the Group, and is discussed further in the 2001 strategic outlook section at the end of this review. Management objectives 2001 During the last two years, our objectives have been to find growth through new product development, improve our return on capital employed and tighten operating efficiencies with reference to key performance indicators. As already outlined in this review good progress has been made. In 2001 our emphasis will evolve as we marshall our resources behind those technologies in our portfolio that have the most exciting growth characteristics. Some parts of our business will be encouraged to generate profits and cash to ensure that the higher growth opportunities are properly resourced from within the Group. This is a change in operational emphasis, and management objectives for 2001 are aligned to making this change happen. Strategic outlook 2001 One of the successes of 2000 at Porvair has been a series of technical breakthroughs early in the year with porous and microporous metals and ceramics - a range of products we are developing under the trademarks MicromassTM and MetPoreTM. These materials have some exciting potential applications, particularly in fuel cell related technology. Fuel cell components use a variety of porous media to control and enhance the chemical reactions that drive the fuel cell. We are working with most of the leading companies in this field, and the materials - both metal and ceramic - are under test in heat exchange, catalyst substrate, emissions and moisture control applications. Industry commentators expect fuel cell technology will have a substantial part to play in meeting the world's growing requirement for electrical power. First commercial applications are expected to be 3 to 5 years away. Development of such a field is a very exciting prospect for the Group, but clearly it does not come without risk. New technologies can fail to deliver their promise, or can take much longer to do so than initially anticipated. Such issues notwithstanding, we view this opportunity as significant for the Group, and believe that with our materials technology, intellectual property position and manufacturing know-how Porvair can become a leading provider of components and subsystems for fuel cell, fuel reformation and allied systems. In consequence, we will increase research and development expenditure substantially from the start of 2001. We are working in new areas of materials science and intend to move to full scale production ahead of the market need. This investment programme will be treated as revenue expenditure and will impact on Group profits from 2001. This is an evolutionary change of emphasis for Porvair and has ramifications across the business. We will fund the investment ourselves, in order to retain title to intellectual property, and believe it important that we do so from existing cash generating resources. This may mean reviewing certain investment and development programmes in some parts of the Group and there may be short-term costs associated with this in 2001. We will be in a position to quantify these later in the year. Whilst this is a change of emphasis, and 2001 will be a transition year, the primary strategic goal of Porvair does not change : to identify and develop material technologies that display clear technical edge, strong market position and significant opportunities for profitable growth. PORVAIR AT A GLANCE Porvair is an innovative advanced materials group. We specialise in advanced ceramic, acrylic, sintered materials and polyurethane membranes. Material Locations Activities Advanced ceramics: - metals Hendersonville, Brings ceramics expertise to the field of molten filtration USA metal handling, catalyst media and thermal processing. World leader in aluminium filtration. - fuel cell Hendersonville, Develops media and components for fuel cell, fuel technologies USA reformer and allied applications. Acrylic King's Lynn, UK Supplies sanitaryware tableware customers materials worldwide with long-life alternatives to traditional ceramic moulding media. Sintered materials: - filtration Wrexham, UK Develops innovative sintered metal and polymer solutions to filtration problems. - sciences Shepperton, UK Specialises in assay equipment and other microplate products for the Life Sciences market. Polyurethane King's Lynn, UK Specialises in polyurethane membranes that enhance membranes Acton, Canada the performance of leather and textiles to make China (50:50 them waterproof and breathable. JV) CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 November 2000 Group Group 2000 1999 Note £'000 £'000 Turnover Continuing operations (including share of joint venture) 65,613 62,535 Less : share of joint venture (1,061) (964) 2 64,552 61,571 Cost of sales (44,292) (43,780) Gross profit 20,260 17,791 Distribution costs (2,092) (2,043) Administrative expenses (13,418) (12,949) Group operating profit before goodwill amortisation 6,863 4,912 Goodwill amortisation (2,113) (2,113) Group operating profit before joint venture - continuing 4,750 2,799 operations Share of operating profit in joint venture 35 62 Group operating profit including joint venture 4,785 2,861 Interest payable (net) (877) (749) Profit on ordinary activities before taxation 3,908 2,112 Tax on profit on ordinary activities (1,808) (987) Profit on ordinary activities after taxation 2,100 1,125 Equity minority interests 9 6 Profit attributable to shareholders 2,109 1,131 Dividends (1,723) (1,644) Retained profit/(loss) for the financial year 386 (513) Earnings per share - basic and diluted 1 8.2p 4.4p - basic and diluted before goodwill amortisation 16.4p 12.6p Reconciliation of movements in equity shareholders' funds For the year ended 30 November 2000 GROUP 2000 1999 £'000 £'000 Profit attributable to shareholders 2,109 1,131 Dividends (1,723) (1,644) Retained profit/(loss) for the financial year 386 (513) New share capital subscribed 121 - Exchange differences 270 184 Net increase/(reduction) in equity shareholders' funds 777 (329) Opening equity shareholders' funds 42,866 43,195 Closing equity shareholders' funds 43,643 42,866 Statement of total recognised gains and losses For the year ended 30 November 2000 GROUP 2000 1999 £'000 £'000 Profit attributable to shareholders 2,109 1,131 Exchange differences on retranslation of net assets of subsidiary undertaking and foreign borrowings 270 184 Total gains relating to the year 2,379 1,315 BALANCE SHEET As at 30 November 2000 GROUP 2000 1999 £'000 £'000 Fixed Assets Goodwill 18,599 20,712 Tangible assets 20,543 19,368 Investments Investments in subsidiary undertakings Investments in joint venture : Share of gross assets 305 292 Share of gross liabilities (250) (272) 55 20 39,197 40,100 Current Assets Stocks 11,993 11,052 Debtors 15,914 13,217 Cash at bank and in hand 856 665 28,763 24,934 Creditors Amounts falling due within one year (13,179) (12,029) Net current assets 15,584 12,905 Total assets less current liabilities 54,781 53,005 Creditors Amounts falling due after more than one year (10,668) (9,787) Provisions for liabilities and charges (434) (320) 43,679 42,898 Capital and reserves Called up share capital 515 514 Share premium account 1,331 1,211 Other reserves 5,362 5,092 Profit and loss account 36,435 36,049 Total equity shareholders' funds 43,643 42,866 Equity minority interests 36 32 43,679 42,898 Approved by the Board on 24 January 2001 B D W Stocks, Director M Moran, Director CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 November 2000 Group Group 2000 1999 Note £'000 £'000 Net cash inflow from operating 4 6,758 8,649 activities Returns on investments and servicing of finance Interest received 26 25 Interest paid (815) (785) (789) (760) Taxation UK corporation tax refunded 151 108 Overseas tax paid (602) (643) (451) (535) Capital Expenditure Purchase of tangible fixed assets (3,583) (4,327) Sale of tangible fixed assets 80 7 (3,503) (4,320) Acquisitions and disposals Purchase of Marand goodwill - (418) Equity dividends paid (1,670) (1,644) Financing Issue of ordinary share capital 121 - Debt due after one year Increase in net borrowings 6 (125) 430 (4) 430 Increase in cash in the year 6 341 1,402 NOTES 1. Earnings per share The basic earnings per share as shown in the profit and loss account are calculated by reference to the profit attributable to shareholders and the average number of shares in issue during the year on a time weighted basis of 25,694,323 (1999 : 25,683,073). For the diluted earnings per share, the weighted average number of ordinary shares is adjusted to assume conversion of all share options outstanding at the year end. The earnings per share before goodwill amortisation has been calculated by adding back £ 2,113,000 (1999 : £2,113,000) to profit after tax attributable to shareholders of £2,109,000 (1999 : profit of £1,131,000). 2. Turnover and segmental analysis The analysis by class of business and geographical segment of the Group's turnover, operating profit and net assets is set out below : 2000 1999 Consumer Filtration Consumer Filtration division division Total division division Total £'000 £'000 £'000 £'000 £'000 £'000 Turnover by geographical destination United Kingdom 3,176 5,756 8,932 4,843 6,325 11,168 Continental Europe 8,616 3,384 12,000 6,893 3,893 10,786 Americas 8,803 22,727 31,530 9,336 19,806 29,142 Asia 6,634 2,335 8,969 6,134 1,351 7,485 Australasia 112 567 679 220 531 751 Africa 2,339 1,164 3,503 2,275 928 3,203 29,680 35,933 65,613 29,701 32,834 62,535 Less share of joint venture (1,061) - (1,061) (964) - (964) 28,619 35,933 64,552 28,737 32,834 61,571 Turnover by geographical origin United Kingdom 22,659 12,044 34,703 23,261 12,578 35,839 Americas and Asia 7,021 23,889 30,910 6,440 20,256 26,696 Less share of joint venture (1,061) - (1,061) (964) - (964) 28,619 35,933 64,552 28,737 32,834 61,571 Operating profit Operating profit before goodwill amortisation and share 2,518 4,345 6,863 2,189 2,723 4,912 of joint venture Goodwill amortisation (794) (1,319)(2,113) (794) (1,319) (2,113) Share of joint venture 35 - 35 62 - 62 Operating profit after goodwill amortisation and share 1,759 3,026 4,785 1,457 1,404 2,861 of joint venture Net Assets Net assets before goodwill and net borrowings : United Kingdom 18,651 5,023 23,674 16,730 5,782 22,512 Americas 395 10,971 11,366 1,942 7,229 9,171 19,046 15,994 35,040 18,672 13,011 31,683 Goodwill 560 18,039 18,599 1,354 19,358 20,712 Net borrowings (9,960) (9,497) 43,679 42,898 NOTES (continued) 3. Employees 2000 1999 Average Year Average Year end end Consumer division 277 276 266 263 Filtration division 372 346 357 366 Head office 9 10 9 8 658 632 632 637 North American employees included 257 236 230 233 above 4. Reconciliation of operating profit to net cash inflow from operating activities 2000 1999 £'000 £'000 Group operating profit including joint venture 4,785 2,861 Goodwill amortisation 2,113 2,113 Depreciation 2,938 2,909 Loss on sale of fixed assets 58 39 (Increase)/decrease in stocks (586) 2,287 Increase in debtors (2,115) (696) Decrease in creditors (400) (325) Share of joint venture profit (35) (62) Net cash inflow from operating activities before exceptional 6,758 9,126 items Exceptional items - (477) Net cash inflow from operating activities 6,758 8,649 5. Reconciliation of net cash flow to movement in net borrowings 2000 1999 £'000 £'000 Increase in cash in the year 341 1,402 Decrease/(increase) in borrowing and lease financing 125 (430) Change in net borrowings from cash flows 466 972 Translation difference (929) (233) Movements in net borrowings in year (463) 739 Opening net borrowings (9,497) (10,236) Closing net borrowings (9,960) (9,497) 6. Analysis of net borrowings Other Exchange 30/11/99 Cash flow non-cash movement 30/11/00 £'000 £'000 £'000 £'000 £'000 Cash in hand and at bank 665 114 - 77 856 Overdrafts (250) 227 - - (23) 341 - Borrowings due after 1 year (9,787) - 125 (1,006) (10,668) Borrowings due within 1 year (125) 125 (125) - (125) 125 Total (9,497) 466 - (929) (9,960) 7. Dividend The Board is recommending a final dividend of 4.3p per share (1999 : 4.1p) to be paid on 6 April 2001 to shareholders on the register at the close of business on 16 March 2001.

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