Final Results - Year Ended 30 November 1999

Porvair PLC 27 January 2000 Contacts: Ben Stocks, Chief Executive Mark Moran, Group Finance Director Porvair plc today 0171 466 5000 at all other times 01553 761111 Charles Ryland/Jennie Duschenes Buchanan Communications 0171 466 5000 PORVAIR plc ('Porvair') PRELIMINARY RESULTS FOR THE YEAR ENDED 30 NOVEMBER 1999 Porvair, the innovative advanced materials company, announces preliminary results for the year ended 30 November 1999. KEY POINTS * Profit before tax, goodwill and exceptional items up 100% to £4.2m (1998 : £2.1m). * Restructuring programme initiated in 1998 now complete. Benefits already apparent and considerable progress made. * Strong cash generation reduced net borrowings to £9.5m (1998 : £10.2m) despite increased capital expenditure of £4.3m (1998 : £3.2m). * Final dividend unchanged at 4.1p, making a total for 1999 of 6.4p (1998 : 6.4p). Dividend cover increased to just under two times. * Consumer division : now focussed on core products - profits up to £2.2m (1998 : £0.9m). * Filtration division : strong performance with profitability up 23%. John Morgan, Chairman, said: 'It is a pleasure to report that the restructuring is complete and that operationally the Group is well positioned to face the future. Like for like sales have increased in the last six months, against both the first half and the comparative period last year, and this trend is expected to continue. This, taken together with progress in new product development and the opportunities for licensing technology, underpins the prospects for further solid progress in the coming year.' Chairman's Statement I am pleased to report that profit before tax, goodwill and exceptional charges has doubled to £4.2m (1998 : £2.1m). This result was achieved against trading conditions that remained challenging for much of the year. The benefits of the restructuring programme outlined in the last annual report have been delivered in full. Our cost base is now lower than in the previous year and the operations are running more efficiently. In addition we have improved the performance of the Group further by dispensing with certain loss making activities and marginal product lines. Although revenue is marginally lower as a result of these actions, sales of our continuing product portfolio are growing. The Group has decided, in adopting Financial Reporting Standard 10 'Goodwill and Intangible Assets', to reinstate all goodwill previously written off against reserves. We believe this to be the best accounting practice, and ensures that all purchased goodwill, now and in the future, will be accounted for consistently. One effect of this will be an annual charge for the amortisation of goodwill which in 1999 amounts to £2.1m (1998 : £2.0m). It will also aid clarity in reporting and allows the balance sheet to reflect a more realistic capital employed figure. The following summarises the operating results restated to take account of the goodwill amortisation : 1999 1998 £m £m * Operating profit before goodwill 5.0 3.1 +62% amortisation/exceptionals * Goodwill amortisation (2.1) (2.0) * Operating profit before exceptionals 2.9 1.1 * Exceptionals - (3.1) ----- ------ * Operating profit 2.9 (2.0) ===== ====== Operating profit before goodwill amortisation and exceptionals increased 62% in 1999 and earnings per share, on the same basis, increased to 12.6p (1998 : 8.1p). We benefited from an effective tax rate of 23% this year, whilst a more normal rate of 30% would have given earnings per share of 11.5p. Cash generation has reduced net borrowings to £9.5m (1998 : £10.2m), despite capital expenditure of £4.3m (1998 : £3.2m). This is the result of tight operational controls leading to lower working capital. The interest charge has reduced by 26% to £749,000, and interest cover before goodwill amortisation and exceptionals increased to 6.6 times (1998 : 3 times). Dividend The Board is recommending an unchanged final dividend of 4.1p per share (1998 : 4.1p) to be paid on 6 April 2000 to shareholders on the register at the close of business on 10 March 2000. This brings the total dividend for the year to 6.4p per share (1998 : 6.4p). The recommended dividend is covered at just under two times earnings per share before goodwill amortisation. The Boards intention is to follow a progressive dividend payment policy whilst also working to achieve earnings per share cover, before goodwill amortisation, for the dividend in the range of 2.0 to 2.5 times. Board As I reported in the Interim results Michael Ost has joined us as a non-executive director, and Peter Greenwood has retired from the Board after serving as a non-executive director for twelve years. Since the half year I have become non-executive Chairman having retired from full-time employment at the end of May 1999. Employees At the year end the Group employed 637 personnel (1998 : 646). After a difficult period for the Group we are making considerable progress and this is due in no small measure to our employees. Our goals can only be achieved through the efforts of those who work in the Group and, on behalf of the Board, I wish to thank all our employees for their commitment to our success. Outlook It is a pleasure to report that the restructuring is complete and that operationally the Group is well positioned to face the future. Like for like sales have increased in the last six months, against both the first half and the comparative period last year, and this trend is expected to continue. This, taken together with progress in new product development and the opportunities for licensing technology, underpins the prospects for further solid progress in the coming year. John Morgan, Chairman 27 January 2000 Operating Review Group Porvair is an advanced materials Group specialising in four technologies : * Polyurethane membranes * Advanced ceramics * Acrylic materials * Sintered materials These four materials technologies approach specific markets through two divisions and five operating companies. Details of each company can be found at the end of this statement. In our activities we look for clear technical edge, strong market presence and significant opportunities for profitable growth. 1999 1999 has been a year of recovery for Porvair. Considerable progress has been made, and we finished the year strongly. Restructuring, announced in late 1998, was completed ahead of schedule - and left us with a smaller product portfolio, fewer operating companies and a lower cost base. The benefits of this programme are reflected in the results. Sales for the year were £61.6m and profit before tax and goodwill amortisation was £4.2m (1998 : £2.1m). Cash generation was good. Through tight operational control we reduced average trading working capital as a percentage of sales by 14%. Key operating measures, particularly productivity and on-time deliveries, have improved through 1999 - and encouragingly, in the second half of the year, we began to see solid progress in sales volumes as the benefits of new product introductions began to show through : H2 H1 H2 1998 1999 1999 £'m £'m £'m Sales 29.6 30.2 31.4 Operating profit before goodwill amortisation/exceptionals 0.5 1.8 3.2 Consumer division This division develops, manufactures and markets polyurethane membranes. As outlined at the half-year, the principal feature of this division in 1999 has been the consolidation of its activities. We cut marginal product lines and focussed on core products. This smaller business started to deliver sales growth in the second half and finished the year at £28.7m. The mainstays of this business are Permair enhanced leather and Porelle waterproof/breathable membranes. Permair enhanced leather has grown through 1999. Early in the year we introduced two new products to improve the technical performance of the range. These have been well received by customers and progress has been helped by a marketing programme that concentrates on the technical edge of the product for specific markets - such as industrial/safety footwear and childrens shoes. As a result, second half sales volumes were 31% ahead of the prior year. Our joint venture in China grew by 20% and exceeded profit expectation. Porelle again grew by 20% in 1999. This volume was largely delivered by a 30% productivity improvement in the existing plant. At the end of the year we brought new capacity on-line to cope with further anticipated growth. Porelle-based products, particularly our waterproof socks and the Sealskinz gloves launched in 1999, did well. Encouragingly, late in 1999, we made substantial progress with some new waterproof/breathable fabrics for institutional applications, and these will benefit us in coming years. As a consequence of the above, operating profit before goodwill amortisation for this division rebounded strongly and at £2.2m was well ahead of the prior year (£0.9m). Filtration division There are four principal operating businesses in this division. The largest is the advanced ceramics organisation in the USA - Selee - which specialises in materials used for molten metal handling. Sales in this business improved 7% during 1999. Tight operational management converted this into a 25% uplift in operating profits. Demand in all markets strengthened across the year and trading was buoyed up by further advances in our proprietary dual-stage aluminium process and by a 40% uplift in high value metals filtration. Progress was also made with the microporous ceramic ('GPM'), which is gaining adoptions for kiln furniture and catalyst media applications. Two intellectual property licences were taken on in 1999 to enhance our ceramic materials technology. Both licences relate to specific ceramic formulations that will improve further our technical performance in molten metal filtration and catalyst media. We have dedicated teams working to bring both to commercial application and expect initial sales in 2000. Operating profit in the sintered materials filtration business was up 49% in the year. This business sinters various materials into porous media. As part of the restructuring we exited marginal product lines early in the year. Consequently sales were flat, but both margins and operational efficiencies improved. We have realigned our marketing effort and now concentrate on proprietary applications for our materials. This will allow steady growth and better margin management. Porvair Sciences, which supplies assay equipment to life science laboratories also uses our sintered materials. This operation had an excellent year. Both sales and profits are up by 50%, driven by key customer adoptions and new microplate products. We indicated at the half year that the acrylic materials business, which makes moulds for the ceramic industry, was finding trading difficult. Conditions did not improve during the second half and the result for the year was below expectation. However, in 1999 we have redoubled our efforts to accelerate product development in this business, and by the end of the year stronger commercial activity suggested that the benefits of this programme were starting to come through. Two new pressure casting machine configurations were introduced in the year and one of these, a modular fully automatic design, has been installed in several customers and is working successfully. We also introduced two new mould chemistries for both sanitary and tableware applications. These are currently undergoing customer tests and commercial sales are expected to commence in 2000. Overall the Filtration division improved profitability by 23%, reporting an operating profit of £2.7m (1998 : £2.2m). New product development As made clear in last years report, new product development is seen as the primary focus for Porvair management. Good progress has been made in 1999. In addition to the licences outlined above we have introduced two new Permair leather configurations and with Porelle have developed line extensions to improve our offering to institutional markets. Sealskinz gloves were launched in September and have been well received. In the Filtration division we have a new formulation of foam filter for steel foundries; a superdome aeration diffuser for waste water treatment; two new optiplates for our life sciences business; our P100 pressure casting system; our PC570 upgraded machine; and the two acrylic mould configurations mentioned above. All of these will benefit sales revenues and margins from 2000 onwards. Management objectives These will change little from those set in 1999. The primary objectives remain : sales growth driven by new product development; improving return on capital employed; and progress with six key operating performance indicators. Management incentives remain tied to performance against these objectives. PORVAIR AT A GLANCE Porvair is an innovative advanced materials group. We specialise in polyurethane membranes, acrylic, advanced ceramic and sintered materials. The Group is organised under two divisions - Consumer and Filtration. Material Locations Employees Activities * Consumer division Polyurethane Kings Lynn, UK 263 Specialises in membranes Boston, USA polyurethane China (50:50 JV) membranes that the performance of leather and textiles to make them waterproof and breathable. * Filtration division Advanced Hendersonville, 215 Brings ceramics ceramics USA expertise to the field of molten metal handling, catalyst media and thermal processing. World leader in aluminium filtration. Acrylic Kings Lynn 48 Supplies sanitary- materials ware and table- ware customers worldwide with long-life alternative to traditional ceramic moulding media. Sintered materials : - filtration Wrexham, UK 86 Develops innovative sintered metal and polymer solutions to filtration problems. - sciences Shepperton, UK 17 Specialises in assay equipment and other microplate products for the Life Sciences market. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 November 1999 Group Group 1999 1998 restated Note £'000 £'000 Turnover Continuing operations (including share of 62,535 62,768 joint venture) Less : share of joint venture (964) (803) --------------- 4 61,571 61,965 Cost of sales (43,780) (45,998) ---------------- Gross profit 17,791 15,967 ---------------- Distribution costs (2,043) (1,976) Administrative expenses (12,949) (15,968) ----------------- Group operating profit before goodwill 4,912 52 amortisation - continuing operations Goodwill amortisation 2 (2,113) (2,029) ----------------- Group operating profit/(loss) before 2,799 (1,977) joint venture Share of operating profit/(loss) in joint 62 (83) venture ----------------- Group operating profit/(loss) including 2,861 (2,060) joint venture Interest payable (net) (749) (1,007) ----------------- Profit/(loss) on ordinary activities 2,112 (3,067) before taxation Tax on profit on ordinary activities (987) (5) ----------------- Profit/(loss) on ordinary activities 1,125 (3,072) after taxation Equity minority interests 6 10 ----------------- Profit/(loss) attributable to 1,131 (3,062) shareholders Dividends (1,644) (1,623) ----------------- Retained loss for the financial year (513) (4,685) ================= Earnings/(losses) per share - basic and diluted 3 4.4p (11.9)p - basic and diluted before goodwill 12.6p (4.0)p amortisation Reconciliation of movements in equity shareholders funds For the year ended 30 November 1999 Group Group 1999 1998 restated Note £'000 £'000 Profit/(loss) for the financial year 1,131 (3,062) Dividends (1,644) (1,623) ---------------- Retained loss for the financial year (513) (4,685) New share capital subscribed - 141 Exchange differences 184 171 --------------- Net reduction in equity shareholders funds (329) (4,373) Opening equity shareholders funds (as originally stated) 43,195 23,132 Prior year adjustment 1,2 - 24,436 --------------- Closing equity shareholders funds 42,866 43,195 =============== Statement of total recognised gains and losses For the year ended 30 November 1999 Group Group 1999 1998 restated Note £'000 £'000 Profit/(loss) attributable to shareholders 1,131 (3,062) Exchange differences on retranslation of net assets of subsidiary undertaking and 184 171 foreign borrowings -------------- Total gains/(losses) relating to the year 1,315 (2,891) Prior year adjustment 1,2 22,407 - ---------------- Total gains/(losses) recognised since last annual report 23,722 (2,891) ================ BALANCE SHEET As at 30 November 1999 Group Group Note 1999 1998 restated £'000 £'000 Fixed Assets Goodwill 2 20,712 22,407 Tangible assets 19,368 18,004 Investments Investments in joint venture : Share of gross assets 292 317 Share of gross liabilities (272) (359) 20 (42) Other investments - 4 20 (38) ---------------- 40,100 40,373 Current Assets ---------------- Stocks 11,052 13,199 Debtors 13,217 12,671 Cash at bank and in hand 665 1,325 --------------- 24,934 27,195 --------------- Creditors Amounts falling due within one year (12,029) (14,976) ----------------- Net current assets 12,905 12,219 ----------------- Total assets less current liabilities 53,005 52,592 ---------------- Creditors Amounts falling due after more than one year (9,787) (9,098) Provisions for liabilities and charges (320) (261) ---------------- 42,898 43,233 =============== Capital and reserves Called up share capital 514 514 Share premium account 1,211 1,211 Other reserves 5,092 4,908 Profit and loss account 36,049 36,562 --------------- Total equity shareholders funds 42,866 43,195 Equity minority interests 32 38 --------------- 42,898 43,233 ============= Approved by the Board on 27 January 2000 B D W Stocks, Director M Moran, Director CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 November 1999 Group Group 1999 1998 £'000 £'000 Net cash inflow from operating 6 9,126 9,251 activities before exceptional items Exceptional items (477) (430) 6 ---------------- Net cash inflow from operating 6 8,649 8,821 activities ----------------- Returns on investments and servicing of finance Interest received 25 17 Interest paid (785) (1,006) -------------------------- (760) (989) -------------------------- Taxation UK corporation tax refunded/(paid) 108 (1,365) Overseas tax paid (643) (512) --------------------------- (535) (1,877) ---------------------------- Capital Expenditure Purchase of tangible fixed assets (4,327) (3,244) Sale of tangible fixed assets 7 23 ---------------------------- (4,320) (3,221) ---------------------------- Acquisitions and disposals Purchase of Marand goodwill (418) - ---------------------------- Equity dividends paid (1,644) (1,641) --------------------------- Financing Issue of ordinary share capital - 141 Borrowings due after one year : Increase in net borrowings 8 430 3,865 --------------------------- 430 4,006 --------------------------- Increase in cash in the year 8 1,402 5,099 =========================== NOTES 1. Prior year adjustment The Groups accounting policy for goodwill has changed in line with Financial Reporting Standard 10 'Goodwill and Intangible Assets', which requires purchased goodwill to be capitalised and amortised through the profit and loss account over its useful economic life. In order to ensure consistency with the revised accounting policy all goodwill previously eliminated against reserves has been reinstated as an asset on the balance sheet, by means of a prior year adjustment, and comparatives restated accordingly. This change in accounting policy has had no impact on net borrowings. The effects of this change of policy on the Groups balance sheet has been to increase net assets, represented by the net book value of goodwill, and shareholders funds by £22.4m at 30 November 1998. The impact of this change in policy resulting from the non- cash amortisation of goodwill was to reduce operating profit in 1999 by £2.1m (1998 : £2.0m). 2. Goodwill Group Group 1999 1998 £'000 £'000 At beginning of the year as - - previously stated Prior year adjustment - reinstated goodwill 29,904 29,904 - accumulated amortisation (7,497) (5,468) brought forward ---------------- At beginning of the year as restated 22,407 24,436 Additions 418 - Amortisation (2,113) (2,029) ---------------- At end of the year as restated 20,712 22,407 =============== On 1 December 1999 the Group acquired the stock of Marand Marketing at book and fair value for £669,000. In addition the Group purchased goodwill totalling £418,000. This acquisition did not make a significant contribution to turnover and operating profit. 3. Earnings per share The basic earnings per share as shown in the profit and loss account are calculated by reference to the profit/(loss) attributable to shareholders and the average number of shares in issue during the year on a time weighted basis of 25,683,073 (1998 : 25,659,245). 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 and exceptional items have been calculated by adding back £2,113,000 (1998 : £5,128,000) to profit after tax attributable to shareholders of £1,131,000 (1998 : loss of £3,062,000). 4. Turnover and segmental analysis The analysis by class of business and geographical segment of the Groups turnover, operating profit and net assets is set out below : 1999 1998 Filtr- Filtr- Consumer ation Consumer ation division division Total division division Total £'000 £'000 £'000 £'000 £'000 £'000 Turnover by geographical destination United Kingdom 4,843 6,325 11,168 4,094 6,535 10,629 Continental Europe 6,893 3,893 10,786 7,197 4,872 12,069 Americas 9,336 19,806 29,142 11,403 19,382 30,785 Asia 6,134 1,351 7,485 5,617 1,114 6,731 Australasia 220 531 751 207 534 741 Africa 2,275 928 3,203 1,497 316 1,813 ---------------------------------------------- 29,701 32,834 62,535 30,015 32,753 62,768 Less share of joint venture (964) - (964) (803) - (803) ---------------------------------------------- 28,737 32,834 61,571 29,212 32,753 61,965 ---------------------------------------------- Turnover by geographical origin United Kingdom 23,261 12,578 35,839 22,812 13,800 36,612 Americas and Asia 6,440 20,256 26,696 7,203 18,953 26,156 Less share of joint venture (964) - (964) (803) - (803) ---------------------------------------------- 28,737 32,834 61,571 29,212 32,753 61,965 ---------------------------------------------- Operating profit Operating profit before goodwill amortisation, share of joint venture profits and exceptional charges 2,183 2,729 4,912 937 2,214 3,151 Goodwill amortisation (794) (1,319) (2,113) (710) (1,319) (2,029) Share of joint venture 62 - 62 (83) - (83) Exceptional charges - - - (2,342) (757) (3,099) ----------------------------------------------- Operating profit/ (loss) after goodwill amortisation, share of joint venture profits and exceptional charges 1,451 1,410 2,861 (2,198) 138 (2,060) ------------------------------------------------- Net Assets Net assets before goodwill and net borrowings: United Kingdom 16,730 5,782 22,512 14,882 5,693 20,575 Americas 1,942 7,229 9,171 1,572 8,915 10,487 -------------------------------------------------- 18,672 13,011 31,683 16,454 14,608 31,062 Goodwill 1,354 19,358 20,712 1,730 20,677 22,407 Net borrowings (9,497) (10,236) --------------------------------------------------- 42,898 43,233 --------------------------------------------------- 5. Employees 1999 1998 Average Year Average Year end end Consumer division 266 263 331 284 Filtration division 357 366 387 352 Head office 9 8 10 10 -------------------------------------- 632 637 728 646 -------------------------------------- USA employees included above 230 233 248 229 6. Reconciliation of operating profit to net cash inflow from operating activities 1999 1998 £'000 £'000 Group operating profit/(loss) including joint 2,861 (2,060) venture Goodwill amortisation 2,113 2,029 Depreciation 2,909 2,695 Loss on sale of fixed assets 39 30 Decrease in stocks 2,287 187 (Increase)/decrease in debtors (696) 5,932 (Decrease)/increase in creditors (325) 355 Share of joint venture (profit)/loss (62) 83 ------------- Net cash inflow from operating activities before 9,126 9,251 exceptional items Exceptional items (477) (430) ------------- Net cash inflow from operating activities 8,649 8,821 -------------- 7. Reconciliation of net cash flow to movement in net borrowings 1999 1998 £'000 £'000 Increase in cash in the period 1,402 5,099 Increase in borrowings and lease financing (430) (3,865) ---------------- Change in net borrowings from cash flows 972 1,234 Translation difference (233) (78) ---------------- Movements in net borrowings in period 739 1,156 Net borrowings at 1 December 1998 (10,236) (11,392) ---------------- Net borrowings at 30 November 1999 (9,497) (10,236) ---------------- 8. Analysis of net borrowings Other Cash non- Exchange 30/11/98 flow cash movement 30/11/99 £'000 £'000 £'000 £'000 £'000 Cash in hand and at bank 1,325 (686) - 26 665 Overdrafts (2,338) 2,088 - - (250) -------------------------------------------- 1,402 -------------------------------------------- Borrowings due after 1 year (9,098) - (430) (259) (9,787) Borrowings due within 1 year (125) (430) 430 - (125) --------------------------------------------- (430) --------------------------------------------- Total (10,236) 972 - (233) (9,497) ----------------------------------------------

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