Preliminary Results

RNS Number : 5193Y

Porvair PLC

27 January 2014

 

For immediate release                                                                                                27 January 2014

Results for the year ended 30 November 2013

Record results ahead of expectations

Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its results for the year ended 30 November 2013.

Highlights

·      Strong financial performance ahead of expectations:

o  Revenues grew by 10% to a record for the Group of £84.3m (2012: £76.5m)

o  25% increase in profit before tax to £7.8m (2012: £6.3m)

o  Basic earnings per share rose 26% to 12.7 pence (2012: 10.1 pence)

o  Strong cash generation resulting in net cash of £0.6m at 30 November 2013 (2012: net debt of £3.9m)

o  £5.1m invested in two small acquisitions. Both fully integrated and performing as expected

o  Final dividend of 1.8 pence per share (2012: 1.6 pence per share) recommended.

·      Metals Filtration:

o  Revenue increased to £28.5m (2012: £28.0m) to another record level

o  Stronger second half driven by margin and market share gains from patented products.

·      Microfiltration:

o  Revenue increased 15% to £55.8m (2012: £48.5m). Record revenue and operating profits for this division

o  Several larger contracts signed and progressing well

o  Good core business progress in aviation, nuclear and bioscience

o  Seal Analytical revenues up 13%

o  Healthy order position going into 2014.

·      Outlook

o  High capital investment in 2014 to support long term organic growth plans

o  Significant one-off boost to revenue from large contracts expected in 2014 with profits spread from 2014 to 2017

o  Board expects steady underlying progress with an additional beneficial impact from the large contracts.

Commenting on the outlook, Ben Stocks, Chief Executive, said:

"Porvair's strategic direction remains consistent and continues to produce good results.  2013 finished well and order books are healthy.  The fundamentals of the markets in which we operate look satisfactory. The larger contracts announced during the year are progressing well and are expected to have a positive impact on the Group, with their accounting implications outlined in this preliminary statement.  The Board expects that provided economic conditions allow, the underlying business will continue to grow.  The Group expects to invest in additional manufacturing capacity in 2014 in the UK, USA and China to meet growing demand, and notes that the Group's new product pipeline is promising. A positive start has been made to 2014."

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 / Helen Greenwood / Clare Akhurst

An analyst briefing will take place at 9:30 a.m. on Monday 27 January at Buchanan. An audio webcast and a copy of the presentation will be available at www.porvair.com on the day.

Operating review

Overview of 2013

	2013		2012		Growth
	£m		£m		%
Revenue	84.3		76.5		10
Profit before tax	7.8		6.3		25
Cash generated from operations	12.3		9.2		34
Net cash/(debt)	0.6		(3.9)		115
Earnings per share	12.7p		10.1p		26

The Group achieved record results in 2013 with annual revenue growth of 10%. Profit before tax grew 25% and earnings per share 26%. Notwithstanding capacity expansion investments and two small acquisitions, strong cash generation enabled the Group to finish the year free of net debt for the first time. Order books carried forward into 2014 are healthy.

Orders for aviation filtration products grew 14% in 2013 driven by recent new product introductions. Nuclear and bioscience orders were also strong.  Sales to environmental laboratories were up 13%. After a slow start, revenues from Metals Filtration improved in the second half to finish up 2% for the year.

Several large contracts were announced in energy markets during the year. These will have a significant  beneficial impact on the group results through to 2017, with the initial benefits showing in the 2013 results.

Capital investments were made in 2013 to expand UK aviation and Chinese manufacturing capacity. Further such investments are planned for 2014 in order to support longer term growth.

Strategic statement

Porvair's strategy has remained consistent for several years. It is to generate shareholder value through the development of specialist filtration and environmental technology businesses, both organically and by acquisition. Such businesses have certain key characteristics in common:

·      specialist design or engineering skills are required;

·      product use and replacement is mandated by regulation, quality accreditation or a maintenance cycle;

·      products will be designed into a specification and will typically have long life cycles.

Since 2007 this strategy has delivered revenue growth of 85% (11% CAGR) and cash from operations of £48m. In 2013 the Group's after tax operating profit return on operating capital was 39% (2012: 30%).

Business model outline

Porvair's business model is as follows:

1.   Focus on end-markets which show long term growth potential and where product use is mandatory.

2.   Make new product development a core business activity.

3.   Establish geographic presence where end-markets require.

4.   Maintain a conservative balance sheet. Re-invest in both organic and acquired growth and pay a progressive dividend.

This business model determines the Group's day-to-day activities:

·      We focus on four end-markets: aviation; energy and industrial; environmental laboratories and molten metals. All have clear structural growth drivers.

·      Our products are specialist in nature: they typically protect more costly or complex downstream systems. As a result they are replaced regularly. Over 80% of our annual revenues are from repeat orders.

·      We encourage new product development in order to generate growth rates in excess of the underlying market.  Around 35% of our annual revenues are now derived from recent product introductions. We try to build good intellectual property around our product developments. About 30% of our revenues are derived from patent protected products.

·      Our geographic presence follows the markets we serve. 46% of revenues are from The Americas, where aviation and metals filtration are strong. 18% of revenues are in Asia and Australasia, where sales into water analysis markets are growing.

·      Porvair is a cash generative business. We aim to maintain a conservative balance sheet, meeting dividend and investment needs within our existing debt facilities and generating free cash flow to pay down debt.  In the last two years we have expanded manufacturing capacity in the UK and China and made five small acquisitions.

Operating structure

·      The Group has two divisions.  The Microfiltration division serves the aviation, environmental laboratory and energy/industrial markets.  The Metals Filtration division serves global aluminium, NAFTA iron foundry and super-alloy markets.

·      The Group manufactures in the UK, US, Germany and China.

Plans for investment and future development

In 2013 Porvair achieved two significant milestones. Large contracts were secured that will underpin manufacturing activity in Microfiltration for at least the next two years and strong underlying trading enabled the Group to finish the year with net cash on the balance sheet. 

Together these will enable a period of accelerated investment.  In 2014 we plan to increase capital investment substantially:

·      We intend to consolidate and expand our UK facilities at New Milton in order to free space for aviation and industrial filtration growth in Fareham.  Aviation sales have grown strongly recently and we need more capacity.

·      Following the acquisition of the trade and assets of Eisenmann Metallurgical LLC in June 2013 we will expand its manufacturing facility in Caribou, Maine, during 2014 and invest in production equipment to increase its capacity.

·      Having built a new factory at Xiaogan, China, for Metals Filtration in 2013 we expect to expand its production capability and capacity through 2014.

·      We will make further investments in the production capabilities in the US.

These and other projects will increase expected capital investment in 2014 to around three times its level of recent years. Capacity increases and equipment upgrades are necessary due to the impact that new product introductions have had on the business. We expect this capacity pressure to continue, with the 2014 product development pipeline looking promising. Interesting work is going on in bioscience filtration; metals filtration manufacturing; water analysis; nuclear filtration and others. Encouraging these projects is central to Porvair's business model.

The 2013 results show the early benefits of the large contract wins, and these will become even more apparent in 2014. The contracts in question are principally those with Posco, the UK Government and Reliance Industries. All of which have been previously announced. The financial impact of these contracts is expected to cause the published results over the next three to four years to fluctuate more than has generally been the case.

·      Multi-year contracts are recognised under long-term accounting rules, which means that revenues are expected to receive a one-off boost in 2014, causing them to be higher than the underlying growth rate the Group would normally deliver. Revenues might then be expected to return to the underlying levels in 2015.

·      Profits are recognised only after due consideration of the potential risks, outstanding liabilities and warranties on each project. Profit recognition could therefore be spread over the period between 2013 and 2017.

·      Net cash inflows are expected to arise principally in 2013 and 2014. Whilst we will maintain suitable cash reserves against the possible needs of the contracts, this cash will be used to re-invest in the business as outlined above.

Divisional review

Metals Filtration

	2013		2012		Growth
	£m		£m		%
Revenue	28.5		28.0		2
Operating profit	2.4		2.4		-

After a slow start to 2013 the Metals Filtration division had a stronger second half, finishing the year with record revenues of £28.5m. The Board was pleased to note that this division was better able to cope with a modest sales downturn in early 2013 than had previously been the case. This is mainly due to higher operating margins achieved in recent years, with patented products accounting for the majority of sales in this division. Despite the slower start to the year operating profits finished in line with 2012's record result of £2.4m.

Conditions in this division's end-markets have been mixed across the year, with global aluminium pricing relatively low but NAFTA auto production staying at satisfactory levels. In this environment we have been able to build market share by demonstrating superior product performance. We have three main product ranges, all patented:

·      Selee CSX™ for aluminium filtration, where we have a high global market share. This product has a unique environmental footprint in being free of phosphates.

·      Selee IC™ for gray and ductile iron filtration. This range is sold principally in the US and offers excellent filtration efficiency.

·      Selee SA™ for the filtration of nickel-cobalt alloys. This niche application requires exceptional filtration performance and uses a highly proprietary manufacturing technique.

The product development pipeline in this division is promising. In recent months we have successfully trialed a new aluminium filter for high grade lithium alloys that are increasingly used in aerospace applications. As previously noted, we have been developing an entirely new design of filter over the last 18 months, and this work continues to go well. Several successful customer trials have been held and we are making modest sales revenues from this project. In 2014 we will start to see whether this remains a niche application or whether it can develop into a more substantial programme.

A new plant was built at Xiaogan in China in the year. The new facility is substantially larger than its predecessor and was built on time and under budget. Production started in the final quarter. We plan to develop this facility to meet the needs of the domestic Chinese market. Further investment in production equipment will be necessary, with installation likely towards the end of 2014.

Microfiltration

	2013		2012		Growth
	£m		£m		%
Revenue	55.8		48.5		15
Operating profit	8.6		6.7		29

The Microfiltration division had a good year with revenues increasing 15% to a record £55.8m. Order books going into 2014 are healthy.

Several large contracts are now underway in this division.  All are proceeding satisfactorily. A second delivery under the $10m POSCO contract was made towards the end of 2013.  POSCO expect to start production trials of its plant that turns coal to substitute natural gas at Gwangyang, South Korea later in 2014. A much larger contract for a similar project was signed in February 2013 with Reliance Industries for their plant at Jamnagar, India. The scope of this work was extended in April and again in August. Finally, an £11.3m contract with the UK Government was announced in January 2013, for deliveries starting in 2014. The likely beneficial financial impact of these projects is discussed above.

Orders in aviation and nuclear filtration have grown again in 2013, with a 14% increase in aviation orders meaning we are starting to hit capacity constraints. As noted above, we will expand our facilities both in the UK and US to provide room for further growth. 

The US based operation grew 24% in 2013, a good result, excluding the maiden contribution from Eisenmann Metallurgical ("CEM"), acquired in June 2013.  CEM is a good bolt-on acquisition for the Group, bringing product and market expertise with a committed and skillful workforce in Caribou, Maine. As noted above we will invest in this facility in 2014 to allow room for growth, and have an expanded management and commercial team in place to drive further growth. Trading at CEM since acquisition has been satisfactory, with integration activities focused on IT and financial systems. This work is now complete, with the Caribou facility now operating well as a satellite plant.

We have been working for several years on some interesting intellectual property in bioscience filtration. A patented DNA filtration product is under development in collaboration with the University of Swansea and with some financial support from the Welsh Government. In an unrelated project, an agreement was struck with Thermo Fisher Scientific ("Thermo") under which Porvair will licence its technology to Thermo who will market frit-less solid phase extraction columns under the SOLA brand. Porvair will receive licence and royalty income and manufacture the product for Thermo. This sort of opportunity, where Porvair technology is licenced to others, is of interest to the Board and results will be monitored closely.

Seal Analytical revenues grew 13%, helped by small acquisitions in 2012 and 2013. Seal is the market leading supplier of equipment and consumables for the detection of inorganic contamination in water, a well defined niche market that will grow as water quality standards improve across the world.  Although its US markets remained quiet for most of the year, demand from China was robust, and parts of Europe showed the first signs of improvement in several years.  Design rights to a range of water analysers were acquired early in the year, and these have transferred to Seal's US operation. Cost savings have been found and manufacturing is now fully integrated. In September the Group purchased the trade and assets of Thomas Cain Inc. ("Cain"), a manufacturer of complementary instruments and consumables. Initial trading at Cain has been satisfactory and the outlook for 2014 is good.

Dividends

The Directors recommend an improved final dividend of 1.8 pence per share (2012: 1.6p), making the full year dividend 2.9 pence per share (2012: 2.6p), an increase of 12%.

Board composition

Michael Gatenby retired from the Board at the 2013 AGM in April. Andrew Walker will retire at the 2014 AGM, having been a director for nine years.  They have both made a substantial contribution to the Group's direction and strategy during their time on the Board. We thank them and wish them well. Following the 2013 AGM, Andrew Walker succeeded Michael Gatenby as senior Non-Executive Director and Paul Dean succeeded him as Chairman of the Audit Committee.  Paul Dean will succeed Andrew Walker as senior Non-Executive Director following the 2014 AGM.

Staff

Looking back over the last five or six years, it is remarkable how much has changed at Porvair. In sales terms we are almost double the size we were in 2007, a significant achievement by our staff. This year we have been joined by employees of Eisenmann Metallurgical and Thomas Cain, and we are pleased to welcome them to the Group. The Board is most grateful to all Porvair's staff for their hard work and commitment.

Current trading and outlook

Porvair's strategic direction remains consistent and continues to produce good results.  2013 finished well and order books are healthy.  The fundamentals of the markets in which we operate look satisfactory. The larger contracts announced during the year are progressing well and are expected to have a positive impact on the Group, with their accounting implications outlined in this preliminary statement.  The Board expects that provided economic conditions allow, the underlying business will continue to grow.  The Group expects to invest in additional manufacturing capacity in 2014 in the UK, USA and China to meet growing demand, and notes that the Group's new product pipeline is promising. A positive start has been made to 2014.

Ben Stocks

Group Chief Executive

24 January 2014

Financial review

Group operating performance

	2013		2012		Growth
	£m		£m		%
Revenue	84.3		76.5		10
Operating profit	8.6		7.2		20
Profit before tax	7.8		6.3		25

The operating profit margin improved to 10.3% (2012: 9.4%). This improvement arises from the benefit of higher revenue driving operational gearing and a steady improvement in the quality of business throughout the Group.  Following several years of steadily improving margins in Metals Filtration, operating margins were maintained in the year and the growth in Microfiltration was accompanied by a 1.7% improvement in operating margins in the year.

The operating performance of the Microfiltration and Metals Filtration divisions are described in detail in the Operating Review and below.  The operating loss associated with the Other Unallocated segment was £2.4m (2012: £1.9m), which mainly comprises Group corporate costs.  These include new business development costs and general financial costs. 

The operating profit includes amortisation charges on intangible assets arising on acquisition of £0.2m (2012: £0.1m), acquisition expenses written off of £0.1m (2012: £0.1m) and share based payment charges of £0.5m (2012: £0.4m).

Impact of exchange rate movements on performance

The international nature of the Group's business means that relative movements in exchange rates can have a significant impact on reported performance.  The average rate used for translating the results of US operations into Sterling was $1.57:£ (2012: $1.58:£) and the Group's Euro denominated operations were translated at €1.18:£ (2012: €1.22:£).  The slightly stronger dollar and stronger Euro rates accounted for 1% of the revenue growth and 1% of the operating profit growth such that currency differences on translation had only a marginal impact compared with the prior year. 

The Group sold forward the majority of its UK business' 2013 US dollar revenue during the financial year and achieved rates between $1.51:£ and £1.6:£ similar to the rates achieved in 2012.

At 30 November 3013 the Group has $19m of outstanding forward foreign exchange contracts taken out to hedge the future revenue on the Group's large contracts.  The Group has applied hedge accounting to these transactions and a gain of £0.9m is shown in the consolidated statement of comprehensive income.

Finance costs

Net interest payable decreased to £0.8m (2012: £0.9m).  Included within interest payable are finance costs in relation to the defined benefit pension scheme, which were £0.4m (2012: £0.4m) in the year.  Other net interest payable reduced as a result of lower borrowings and a lower margin on the new facilities in place from January 2013.

The Group has a policy of maintaining between 40% and 60% of its borrowings on fixed interest terms.  It achieved this by taking out interest rate swaps to fix the interest rates on certain of its borrowings.  These provided some protection for the Group in the event of interest rate rises.  As a result of the significant decline in the Group's borrowings in the year, the Group had approximately 75% of its gross borrowings held at a fixed rate at 30 November 2013, however the fixed rate contracts expire shortly after the year end.  For the time being, while the Group's gross borrowings are low, the Board has concluded that further interest rate swaps need not be taken out and the Group's borrowings are at floating rate from 13 December 2013. The contracts in place during the year are summarised below:

Fixed rate	Principal amount	Principal terms
1.88%	$5m	Effective from 12 December 2010 to 12 December 2013
2.29%	$2.5m	Effective from 12 December 2011 to 12 December 2013

Interest cover was 11 times (2012: 8 times); excluding the impact of the pension finance charge the interest cover is 21 times (2012: 14 times).

Tax

The Group tax charge was £2.4m (2012: £2.0m).  This is an effective rate of 30% (2012: 32%), higher than the UK standard corporate tax rate of 23.3% (2012: 24.7%), mainly as a result of higher tax rates on profits made in Germany and the US.  The tax charge comprises current tax of £2.3m (2012: £1.8m) and a deferred tax charge of £0.1m (2012: £0.2m). 

The deferred tax asset of £2.4m (2012: £2.0m) relates to the deficit on the pension fund and share-based payments totaling £3.7m (2012: £3.1m) offset by a net £1.3m (2012: £1.1m) deferred tax liability in relation to accelerated capital allowances, capitalised development costs and other timing differences.  The Group no longer has any unrecognised deferred tax assets arising from previously unrecognized losses.

Total equity

Total equity at 30 November 2013 was £47.7m (2012: £45.2m), an increase of 6% over the prior year.  Increases in total equity arose from profit after tax of £6.0m (2012: £4.9m), after adding back the charge for employee share option schemes; £0.7m (2012: £nil) in relation to share issues on option exercises; and £1.0m (2012: £0.1m) arising from hedge accounting instruments.  Dividends paid of £1.2m (2012: £1.0m); an actuarial loss of £3.1m net of tax (2012: £0.6m); and exchange losses on translation of £0.9m (2012: loss of £0.3m) reduced total equity.

Return on capital employed

The increase in the profits of the Group compared with a stable asset base led to an increase in the return on capital employed to 13% (2012: 10%).  Excluding the impact of goodwill, the return on operating capital employed increased to 39% (2012: 30%).

Cash flow

The table below summarises the key elements of the cash flow for the year:

	2013		2012
	£m		£m
Operating cash flow before working capital	11.2		9.5
Working capital movement	1.1		(0.3)
Cash generated from operating activities	12.3		9.2
Interest	(0.4)		(0.5)
Tax	(2.1)		(1.2)
Capital expenditure net of disposals	(1.5)		(2.0)
	8.3		5.5
Acquisitions	(3.3)		(3.3)
Dividends	(1.2)		(1.0)
Share issue proceeds	0.7		-
Net debt at 1 December	(3.9)		(5.1)
Net cash/(debt) at 30 November	0.6		(3.9)

Net working capital was tightly controlled and reduced by £1.1m, although revenue rose by 10% in the year.  Inventories increased as a result of the increased revenue.  Trade and other receivables also increased a little as a result of higher revenue but the majority of the increase relates to advance payments made to suppliers in relation to the Group's large contracts. Trade and other payables increased significantly, in part because of the receipt of cash ahead of the recognition of revenue on the Group's large projects.

Net interest paid represents the bank interest charged in the year.  It reduced as bank borrowings fell in the year. 

Tax payments in the US have increased, following the final utilisation in 2012 of past tax losses in the Metals Filtration division. Tax payments are now more closely in line with the Group's tax charge.

Capital expenditure

Capital expenditure was £2.0m (2012: £2.0m) offset by £0.5m (2012: £nil) received on the disposal of a UK property.  The principal investments in 2013 were a new plant in Xiaogan, China, for Metals Filtration and additional plant in the Microfiltration division to increase capacity, principally to deliver growth in aerospace business. 

Looking forward to 2014 the Board is planning significant capital projects in 2014 to provide new and upgraded plants in the UK, US and further increases to production capacity throughout the Group.  Capital expenditure is likely to rise to around three times the normal level.

Acquisitions

The Group invested £5.1m on two US based acquisitions in the year: on 4 June 2013 the Group purchased the trade and assets of Eisenmann Metallurgical LLC, a manufacturer of specialist filters; and on 20 September 2013 the Group purchased the trade and assets of Thomas Cain Inc., a manufacturer of environmental laboratory equipment and consumables.  These acquisitions gave rise to goodwill of £3.7m.  £3.3m was paid in cash in the year and up to a further £1.9m deferred and contingent consideration is due, including £0.1m in relation to acquisitions made in 2012.

The acquisitions contributed £1.5m of revenue and £0.1m of operating profit in the year after charging £0.1m of acquisition costs.

It is estimated that had the acquisitions been owned for a full year they would have contributed £3.8m of revenue and £0.7m of operating profit in the year.

Pension schemes

The Group continues to support its defined benefit pension scheme in the UK, which is closed to new members, and to provide access to defined contribution schemes for its US employees and other UK employees.

The Group total pension cost was £1.4m (2012: £1.2m).  £1.0m (2012: £0.8m) was recorded as an operating cost and £0.4m (2012: £0.4m) was recorded as a finance charge.  The Group continues to account for its pension schemes under IAS 19 and will adopt IAS 19 revised in the year ending 30 November 2014.  Had the Group adopted IAS19 revised it is estimated that the Group's pension charge in the year would have been £0.2m higher.

The Group recorded a retirement benefit obligation of £11.9m (2012: £8.5m).  The increase in the deficit principally related to an actuarial loss in the year of £3.6m (2012: £1.2m), which in turn arose as a result a change in the mortality assumptions.  The other assumptions adopted were in line with the previous year.

The scheme had 53 (2012: 54) active members, 289 (2012: 295) deferred members and 265 (2012: 265) pensioners at 30 November 2013. The life expectancy of members of the scheme at age 65 is assumed to be 21.5 years (2012: 19.7 years) for men and 23.7 years (2012: 22.3 years) for women.

A full triennial actuarial valuation of the assets and liabilities of the defined benefit scheme was completed in 2013, based on data at 31 March 2012.  As a result of this review, the Group and the Trustees agreed to alter the employer's contributions from 8.2% of salary to 13.3% of salary.  Additionally, the Group committed to making a £194,000 annual contribution towards the running costs of the scheme from March 2014, which will increase by 3.25% per annum thereafter.  The Group also committed to make additional annual contributions, to cover the past service deficit, of £456,000 per annum commencing in December 2013, increasing by 5% per annum thereafter.  The funding shortfall is expected to be eliminated by December 2027. The next full actuarial valuation of the scheme will be based on the pension scheme's position at 31 March 2015 and is expected to be completed before June 2016.

Borrowings and bank finance

At the year end, the Group had net cash balances of £0.6m (2012: net debt of £3.9m) comprising cash balances of £6.8m (2012: £7.3m) offset by gross borrowings of £6.2m (2012: £11.2m).  Borrowings of £4.6m ($7.5m) (2012: £6.4m ($10.3m)) are held in US dollars.

The Group signed a new five year borrowing facilities on 25 January 2013 comprising a five year $20m revolving credit facility, a £2.5m term loan (reduced to £1.75m at 30 November 2013) and a £2.5m overdraft facility.  These facilities have margins ranging between 1.95% and 2.25%, a considerable reduction on the margins of the previous facilities, which had margins of 2.7%. The new facilities provide adequate operating headroom until January 2018. 

At 30 November 2013, the Group had £7.6m of unused loan facilities (2012: £1.0m of unused facilities), an unutilised overdraft facility of £2.5m (2012: £2.5m) and cash balances of £6.8m (2012: £7.3m).  The £1.4m cash balance held as restricted cash at 30 November 2012 was released in March 2013.

Finance and 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 trading exposure to currency movements. The Group does not hedge against the impact of exchange rate movements on the translation of profits and losses of overseas operations.

At the year end, the Group had $7.5m (2012: $10.3m) of US dollar borrowings exposure which partially hedged underlying US net assets on the balance sheet of $51.4m (2012: $35.8m).

The Group finances its operations through share capital, retained profits and bank debt. It has adequate facilities to finance its current operations and capital plans for the foreseeable future.

Chris Tyler

Group Finance Director

24 January 2014

Consolidated income statement

For the year ended 30 November

		Note	2013		2012
Continuing operations			£'000		£'000
Revenue		1	84,267		76,455
Cost of sales			(55,519)		(51,231)
Gross profit			28,748		25,224
Distribution costs			(968)		(990)
Administrative expenses			(19,139)		(17,029)
Operating profit		1	8,641		7,205
Interest payable and similar charges			(793)		(906)
Profit before income tax			7,848		6,299
Income tax expense			(2,367)		(2,017)
Profit for the year attributable to shareholders			5,481		4,282
Earnings per share (basic)		2	12.7p		10.1p
Earnings per share (diluted)		2	12.5p		9.9p

Consolidated statement of comprehensive income

For the year ended 30 November

	2013 £'000		2012 £'000
Profit for the year	5,481		4,282
Other comprehensive income / (expense):
Items that will not be reclassified to profit and loss
Actuarial losses in defined benefit pension plans net of tax	(3,079)		(635)
Items that may subsequently be classified to profit and loss
Exchange differences on translation of foreign subsidiaries	(921)		(271)
Changes in fair value of interest rate swaps held as a cash flow hedge	79		81
Changes in fair value of forex contracts held as a cash flow hedge	932		-
	90		(190)
Net other comprehensive expense	(2,989)		(825)
Total comprehensive income for the year attributable to shareholders of Porvair plc	2,492		3,457

Consolidated balance sheet

As at 30 November

	Note	2013 £'000		2012 £'000
Non-current assets
Property, plant and equipment	4	9,006		8,641
Goodwill and other intangible assets	5	42,535		39,983
Deferred tax asset		2,440		1,996
Derivative financial instruments		144		-
		54,125		50,620
Current assets
Inventories		11,617		10,258
Trade and other receivables		13,978		11,911
Derivative financial instruments		1,027		67
Cash and cash equivalents		6,773		7,275
		33,395		29,511
Current liabilities
Trade and other payables		(19,472)		(14,228)
Current tax liabilities		(995)		(875)
Borrowings	6	(983)		(1,000)
Derivative financial instruments		(20)		(99)
		(21,470)		(16,202)
Net current assets		11,925		13,309
Non-current liabilities
Borrowings	6	(5,211)		(10,145)
Retirement benefit obligations		(11,875)		(8,494)
Other payables		(1,159)		-
Provisions for other liabilities and charges		(125)		(116)
		(18,370)		(18,755)
Net assets		47,680		45,174
Capital and reserves
Share capital	7	875		852
Share premium account	7	35,147		34,511
Cumulative translation reserve	8	(309)		612
Retained earnings	8	11,967		9,199
Total equity		47,680		45,174

Consolidated cash flow statement

For the year ended 30 November

	Note		2013 £'000		2012 £'000
Cash flows from operating activities
Cash generated from operations	10		12,265		9,163
Interest paid			(417)		(518)
Tax paid			(2,104)		(1,238)
Net cash generated from operating activities			9,744		7,407
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)	9		(3,324)		(3,329)
Purchase of property, plant and equipment	4		(1,831)		(1,780)
Purchase of intangible assets	5		(193)		(171)
Proceeds from sale of property, plant and equipment			481		23
Net cash used in investing activities			(4,867)		(5,257)
Cash flows from financing activities
Proceeds from issue of ordinary share capital	7		659		41
(Repayment of)/increase in borrowings			(4,850)		1,071
Dividends paid to shareholders	3		(1,175)		(1,023)
Capital element of finance leases			-		(6)
Net cash (used in)/generated from financing activities			(5,366)		83
Net (decrease)/increase in cash and cash equivalents			(489)		2,233
Effects of exchange rate changes			(13)		(69)
			(502)		2,164
Cash and cash equivalents at 1 December			7,275		5,111
Cash and cash equivalents at 30 November			6,773		7,275

Reconciliation of net cash flow to movement in net debt

		2013 £'000		2012 £'000
Net (decrease)/increase in cash and cash equivalents		(489)		2,233
Effects of exchange rate changes		88		53
Repayment of/(increase in) borrowings		4,850		(1,071)
Repayment of finance leases		-		6
Net debt at 1 December		(3,870)		(5,091)
Net cash/(debt) at 30 November		579		(3,870)

 Consolidated statement of changes in equity

	Share capital £'000	Share premium account £'000	Cumulative translation reserve £'000	Retained earnings £'000	Total £'000
Balance at 1 December 2011	851	34,471	883	5,886	42,091
Profit for the year	-	-	-	4,282	4,282
Other comprehensive income/(expense):
Exchange differences on translation of foreign subsidiaries	-	-	(271)	-	(271)
Changes in fair value of interest rate swaps held as a cash flow hedge	-	-	-	81	81
Actuarial losses in defined benefit pension plans net of tax	-	-	-	(635)	(635)
Total comprehensive income for the year	-	-	(271)	3,728	3,457
Transactions with owners:
Employee share option schemes:
- value of employee services net of tax	-	-	-	608	608
Proceeds from shares issued	1	40	-	-	41
Dividends approved or paid	-	-	-	(1,023)	(1,023)
Balance at 30 November 2012	852	34,511	612	9,199	45,174
Balance at 1 December 2012	852	34,511	612	9,199	45,174
Profit for the year	-	-	-	5,481	5,481
Other comprehensive income/(expense):
Exchange differences on translation of foreign subsidiaries	-	-	(921)	-	(921)
Changes in fair value of interest rate swaps held as a cash flow hedge	-	-	-	79	79
Changes in fair value of foreign exchange contracts held as a cash flow hedge	-	-	-	932	932
Actuarial losses in defined benefit pension plans net of tax	-	-	-	(3,079)	(3,079)
Total comprehensive income for the year	-	-	(921)	3,413	2,492
Transactions with owners:
Employee share option schemes:
- value of employee services net of tax	-	-	-	530	530
Proceeds from shares issued	23	636	-	-	659
Dividends approved or paid	-	-	-	(1,175)	(1,175)
Balance at 30 November 2013	875	35,147	(309)	11,967	47,680

Notes

1.             Segment information

The segmental analyses of revenue, operating profit/(loss), segment assets and liabilities and geographical analyses of revenue are set out below:

2013		Metals Filtration		Microfiltration		Other Unallocated		Group
		£'000		£'000		£'000		£'000
Revenue		28,484		55,783		-		84,267
Operating profit/(loss)		2,391		8,632		(2,382)		8,641
Net finance costs		-		-		(793)		(793)
Profit/(loss) before income tax		2,391		8,632		(3,175)		7,848
Income tax expense		-		-		(2,367)		(2,367)
Profit/(loss) for the year		2,391		8,632		(5,542)		5,481

2012		Metals Filtration		Microfiltration		Other Unallocated		Group
		£'000		£'000		£'000		£'000
Revenue		27,977		48,478		-		76,455
Operating profit/(loss)		2,383		6,688		(1,866)		7,205
Net finance costs		-		-		(906)		(906)
Profit/(loss) before income tax		2,383		6,688		(2,772)		6,299
Income tax expense		-		-		(2,017)		(2,017)
Profit/(loss) for the year		2,383		6,688		(4,789)		4,282

Other Group operations are included in "Other Unallocated".  These mainly comprise Group corporate costs and include new business development costs and general financial costs.

1.             Segment information continued

Segment assets and liabilities

At 30 November 2013		Metals Filtration		Microfiltration		Other Unallocated		Group
		£'000		£'000		£'000		£'000
Segmental assets		24,623		51,606		4,518		80,747
Cash and cash equivalents		-		-		6,773		6,773
Total assets		24,623		51,606		11,291		87,520
Segmental liabilities		(3,360)		(15,459)		(2,952)		(21,771)
Retirement benefit obligations		-		-		(11,875)		(11,875)
Borrowings		-		-		(6,194)		(6,194)
Total liabilities		(3,360)		(15,459)		(21,021)		(39,840)

At 30 November 2012		Metals Filtration		Microfiltration		Other Unallocated		Group
		£'000		£'000		£'000		£'000
Segmental assets		24,362		45,285		3,209		72,856
Cash and cash equivalents		-		-		7,275		7,275
Total assets		24,362		45,285		10,484		80,131
Segmental liabilities		(3,102)		(10,059)		(2,157)		(15,318)
Retirement benefit obligations		-		-		(8,494)		(8,494)
Borrowings		-		-		(11,145)		(11,145)
Total liabilities		(3,102)		(10,059)		(21,796)		(34,957)

Geographical analysis

	2013				2012
	By destination £'000		By origin £'000		By destination £'000		By origin £'000
Revenue
United Kingdom	17,772		36,943		14,250		34,877
Continental Europe	11,187		6,658		11,506		6,749
United States of America	33,324		39,214		30,963		33,350
Other NAFTA	3,479		-		2,846		-
South America	1,709		-		1,904		-
Asia	14,342		1,452		12,440		1,479
Australasia	1,141		-		1,048		-
Africa	1,313		-		1,498		-
	84,267		84,267		76,455		76,455

2.             Earnings per share

	2013				2012
Basic EPS	Earnings £'000	Weighted average number of shares	Per share amount (pence)		Earnings £'000	Weighted average number of shares	Per share amount (pence)
Earnings attributable to ordinary shareholders	5,481	43,254,346	12.7		4,282	42,601,240	10.1
Effect of dilutive securities - share options	-	661,024	(0.2)		-	777,195	(0.2)
Diluted EPS	5,481	43,915,370	12.5		4,282	43,378,435	9.9

3.             Dividends per share

	2013			2012
	Per share	£'000		Per share	£'000
Final dividend paid	1.6p	694		1.4p	597
Interim dividend paid	1.1p	481		1.0p	426
	2.7p	1,175		2.4p	1,023

The Directors recommend the payment of a final dividend of 1.8 pence per share (2012: 1.6 pence per share) on 6 June 2014 to shareholders on the register on 2 May 2014; the ex-dividend date is 30 April 2014.  This makes a total dividend for the year of 2.9 pence per share (2012: 2.6 pence per share).

4.             Property, plant and equipment

Cost		Land and buildings		Assets in the course of construction		Plant, machinery and equipment		Total
		£'000		£'000		£'000		£'000
At 1 December 2012		4,164		387		24,374		28,925
Reclassification		76		(488)		412		-
Additions		338		454		1,039		1,831
Acquisitions		100		-		393		493
Disposals		(584)		-		(264)		(848)
Exchange differences		(72)		(4)		(315)		(391)
At 30 November 2013		4,022		349		25,639		30,010

Depreciation
At 1 December 2012		(1,817)		-		(18,467)		(20,284)
Charge for the year		(210)		-		(1,217)		(1,427)
Disposals		224		-		209		433
Exchange differences		32		-		242		274
At 30 November 2013		(1,771)		-		(19,233)		(21,004)

Net book value
At 30 November 2013		2,251		349		6,406		9,006
At 30 November 2012		2,347		387		5,907		8,641

5.             Goodwill and other intangible assets

	Goodwill		Development expenditure capitalised		Software capitalised		Trademarks, knowhow and other intangibles		Total
	£'000		£'000		£'000		£'000		£'000
Net book amount at 1 December 2012	38,666		474		138		705		39,983
Additions	-		-		47		146		193
Acquisitions	3,654		-		-		127		3,781
Amortisation charges	-		(134)		(168)		(150)		(452)
Exchange differences	(947)		(11)		2		(14)		(970)
Net book amount at 30 November 2013	41,373		329		19		814		42,535

At 30 November 2013	Goodwill		Development expenditure capitalised		Software capitalised		Trademarks, knowhow and other intangibles		Total
	£'000		£'000		£'000		£'000		£'000
Cost	59,910		1,818		1,011		1,079		63,818
Accumulated amortisation and impairment	(18,537)		(1,489)		(992)		(265)		(21,283)
Net book amount	41,373		329		19		814		42,535

6.             Borrowings

	2013 £'000		2012 £'000
Secured multi-currency revolving credit facility of US$20 million (2012: US$15 million) maturing in January 2018 with interest at 2.25% (2012: 2.7%) above US dollar LIBOR	4,474		8,395
Secured five year amortising debt facility of £1.75 million (2012: £2.75 million) expiring in June 2015 with interest at 2.0% (2012: 2.7%) above LIBOR	1,720		2,750
At 30 November	6,194		11,145

On 25 January 2013, the Group signed a new five year banking facility agreement providing a US $20m revolving credit facility, a £2.5 million amortising term loan and a £2.5m overdraft.  At 30 November 2013, the Group had £7.6 million of unused facilities (2012: £1 million of unused facilities) and an unutilised overdraft facility of £2.5 million (2012: £2.5 million). 

7.             Share capital and premium

		Number of shares		Ordinary shares		Share premium account		Total
		thousands		£'000		£'000		£'000
At 1 December 2012		42,613		852		34,511		35,363
Issue of shares on exercise of share options		1,121		23		636		659
At 30 November 2013		43,734		875		35,147		36,022

In April 2013, 461,500 ordinary shares of 2 pence each were issued on the exercise of long term share plan share options for cash consideration of £9,000.  In February 2013, April 2013, May 2013 and June 2013, 650,000 ordinary shares of 2 pence each were issued on the exercise of executive share options share options for cash consideration of £641,000.  In June 2013, October and November 2013, 9,526 ordinary shares of 2 pence each were issued on the exercise of save as you earn share options for cash consideration of £9,000.

8.             Other reserves

			Cumulative translation reserve		Retained earnings
			£'000		£'000
At 1 December 2011			883		5,886
Profit for the year attributable to shareholders			-		4,282
Dividends paid			-		(1,023)
Actuarial losses			-		(1,200)
Tax on actuarial losses			-		565
Share based payments			-		380
Tax on share based payments			-		228
Interest rate swap cash flow hedge			-		81
Exchange differences			(271)		-
At 30 November 2012			612		9,199
Profit for the year attributable to shareholders			-		5,481
Dividends paid			-		(1,175)
Actuarial losses			-		(3,550)
Tax on actuarial losses			-		471
Share based payments			-		455
Tax on share based payments			-		75
Interest rate swap cash flow hedge			-		79
Foreign exchange contract cash flow hedge			-		932
Exchange differences			(921)		-
At 30 November 2013			(309)		11,967

9.             Acquisitions

On 4 June 2013 the Group, through its subsidiary Porvair Filtration Group Inc., purchased the trade and assets of Eisenmann Metallurgical LLC.  The trade is the manufacture of specialist filters and is based in the USA.  The trade contributed external revenues of £1.3m and a net profit of £0.1m in the period 4 June 2013 to 30 November 2013. It is estimated that if the acquisition had occurred on 1 December 2012, the acquisition would have contributed external revenues of £2.6m and a £0.4m net profit for the year ended 30 November 2013.  The total consideration payable was $5,995,000 (£3,890,000); $3,995,000 (£2,582,000) was paid in the year ended 30 November 2013, with further payments due up to 4 June 2015.  Acquisition-related costs of £48,000 have been charged to administrative expenses in the consolidated income statement in the year ended 30 November 2013.

On 20 September 2013 the Group, through its subsidiary Seal Analytical Inc., purchased the trade and assets of Thomas Cain Inc., a manufacturer of environmental laboratory equipment and consumables. The trade contributed external revenues of £199,000 and net profit of £44,000 to the Group in the period from 20 September to 30 November 2013.  It is estimated that if the acquisition had occurred on 1 December 2012, the acquisition would have contributed external revenues of £1.2m and a net profit of £0.3m for the period ended 30 November 2013.  The total consideration is up to $1,987,000 (£1,241,000) with a $1,087,000 (£679,000) initial payment and the remaining $900,000 (£562,000) contingent upon achievement of agreed profit performance in the year to 30 November 2014.  Acquisition-related costs of £17,000 have been charged to administrative expenses in the consolidated income statement in the year ended 30 November 2013.

	Eisenmann Metallurgical		Thomas Cain			Total
	£'000		£'000			£'000
Purchase consideration:
Cash paid	2,582		679			3,261
Contingent consideration	-		562			562
Deferred consideration	1,308		-			1,308
Total purchase consideration	3,890		1,241			5,131
Fair value of net assets acquired	(1,276)		(201)			(1,477)
Goodwill	2,614		1,040			3,654

	Total
	£'000
Cash paid on acquisitions in the year	3,261
Deferred consideration paid relating to previous years' acquisitions	63
Cash paid	3,324

The goodwill attributable to each acquisition relates to the acquired customer base, the synergies between the business acquired and the existing operations of the Group and the potential to develop the acquired technologies.

10.          Cash generated from operations

			2013 £'000		2012 £'000
Operating profit			8,641		7,205
Non-cash pension charge			240		200
Share based payments			455		380
Depreciation, amortisation and impairment			1,879		1,662
Profit on disposal of property, plant and equipment			(66)		(1)
Operating cash flows before movement in working capital			11,149		9,446
Increase in inventories			(920)		(1,069)
Increase in trade and other receivables			(2,002)		(486)
Increase in payables			4,038		1,272
Increase in working capital			1,116		(283)
Cash generated from operations			12,265		9,163

11.          Basis of preparation 

The results for the year ended 30 November 2013 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union as at 30 November 2013.  The financial information contained in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The financial information has been extracted from the financial statements for the year ended 30 November 2013, which have been approved by the Board of Directors and on which the auditors have reported without qualification.  The financial statements will be delivered to the Registrar of Companies after the Annual General Meeting.  The financial statements for the year ended 30 November 2012, upon which the auditors reported without qualification, have been delivered to the Registrar of Companies.

12.          Annual general meeting

The Company's Annual General Meeting will be held on Tuesday 8 April 2014 at 7 Regis Place, Bergen Way, King's Lynn, PE30 2JN.

13           Related parties

There were no related party transactions in the year ended 30 November 2013.

14           Responsibility Statement

Each of the Directors confirms that, to the best of his knowledge that:

·      the financial statements, on which this announcement is based, have been prepared in accordance with the applicable law and International Financial Reporting Standards as adopted by the EU and give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·      the review of the business includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

The Directors of Porvair are listed in the Porvair Annual Report for the year ended 30 November 2012.  Since the Report was filed Michael Gatenby resigned as a Non-Executive Director on 16 April 2013.  A list of current Directors is maintained on the Porvair website www.porvair.com.

Copies of full accounts will be sent to shareholders in March 2014. Additional copies will be available from www.porvair.com. 

 

END

 

 

FR BIMRTMBATBLI