Clyde Process Solutions plc

(“CPS” or the “Group”)

Preliminary Results

Clyde Process Solutions plc (AIM: CPSP), a provider of customer-driven, material handling solutions for process industries, announces its preliminary results for the year ended 29 February 2008.  Following the acquisition of MAC Equipment Inc (“MAC”) in April 2007, the preliminary results cover twelve months trading for Clyde Materials Handling Ltd (“CMH”) and ten and half months for MAC. 

Financial highlights

Operational highlights

Commenting on the results, Jim McColl, Chairman of Clyde Process Solutions plc, said: “This has been a transformational year for the Group, resulting in strong organic growth coupled with the acquisition of MAC Equipment in April 2007, which has given the Group a strong presence in the US.   The combination of MAC Equipment and Clyde Materials Handling is already creating exciting new opportunities for the Group. 

“Clyde Process Solutions has grown in all key markets, including the UK, North America, South America and Asia.  Our customers, both current and potential, continue to seek to reduce energy consumption, non-renewable raw material utilisation and emission levels created from their production processes.  I am confident about the prospects for the enlarged Group going forward.”

 Notes to Editors 

Clyde Process Solutions plc is a provider of customer-driven, material handling solutions for process industries.  The Group is primarily involved with the design and implementation of value-adding, energy efficient solutions, which are used to handle the raw materials required to produce commodities such as metals, cement, chemicals and ethanol.  The use of pneumatic conveying and air filtration technologies enables CPS’s clients to solve challenges associated with other methods of conveying, including dust and material spillage and subsequent possible contamination of both operational environments and the local communities in which the manufacturing facilities are based. 

The Group has an extensive, global reference list and has used its technologies to improve the operational effectiveness of their customers’ production processes.  The Group has two principal subsidiaries: 

Clyde Process Solutions has close to 40 years of experience in the pneumatic conveying and air filtration industry, backed by a wealth of process knowledge.  The company employs over 500 staff throughout 10 worldwide offices to support its global customer base. 

For further information, please see www.clydeprocesssolutions.com
 

Chairman’s and Chief Executive’s Statement

We are pleased to present our financial results for the twelve month period ended 29 February 2008 in what has been a transformational phase in the development and growth of Clyde Process Solutions plc (“CPS” or the “Group”).  

The performance of the Group has been extremely encouraging throughout the year despite fluctuations in US dollar exchange rate. The full year results for the period ended 29 February 2008 represent twelve months trading for Clyde Materials Handling Ltd (“CMH”) and ten and a half months for MAC Equipment Inc (“MAC). 

In the last year, we have achieved strong global organic growth within key customer markets, such as food, petrochemicals, cement and steel, where we have deployed our range of materials handling and air filtration solutions to solve the operational and environmental issues of our customers’ production processes.  We are excited by the success and progress of our cement strategy, which has generated a significant value of orders to the Group during the period under review.  

The Group is committed to setting the industry standards for innovative solutions, product quality and superior customer service and we believe our strategy and people will deliver on these aims, generating continued growth in sales and profits and generating returns to our shareholders. 

During the period under review, we are delighted that our acquisition of MAC for an enterprise value of £43 million was completed and are excited by the value MAC has generated for the Group. MAC joined the Group on the 17 April 2007 and has provided us with an array of complementary pneumatic conveying technologies, whilst adding a market leading portfolio of air filtration solutions and exposure to new customer markets for the Group, particularly in North America. 

The acquisition of MAC has provided the Group with a range of synergies which we have started to deliver on. Our first successes have been in the North American market where we have integrated the existing CMH business with MAC, utilising MAC’s internal and external sales resources, which span 25 agencies and over 200 people, and other extensive support and manufacturing capability.  The Group has identified opportunities to market an extensive range of pneumatic conveying and air filtration solutions into key customer markets.  We have also made significant progress as a Group in developing relationships with existing key customers around the globe, selling solutions to the cement market and promoting our technologies. Whilst this thread of our strategy is in its infancy, we believe these synergies will be rewarding and we are now exploring markets and territories to take MAC’s technologies globally. 

Strategy

We believe that in order to maintain our position as a global process solutions provider we must continue to be market and customer focused. We must also have the ability to listen and provide solutions that meet the needs of our customers, deliver solutions, services and support rapidly; and have the ability to develop and nurture relationships. 

The three elements of our strategy, which are ‘market driven’, ‘customer focused’, ‘innovative solutions’ have enabled us to achieve these objectives.  Our process solutions are in demand due to their energy efficiency saving and emission reducing capabilities.  

By targeting and engaging closely with our key customer markets we have been able to develop solutions that not only meet the evolving needs of our customers, but have also added outstanding economic and environmental benefits to their operations. Consequently, this approach has enabled us to effectively communicate the value our solutions can generate for our customers, which has resulted in securing healthy levels of contribution. 

Operational Review

The financial performance of each of our global subsidiaries has been positive, particularly in North America, where the performance of MAC has made a significant contribution. 

§         UK

Our UK operations generated a 20% increase in revenue to £15.7 million (2007: £13.1 million). This growth in revenue has resulted from significant orders secured in the cement and steel sectors.  Our cement strategy has been very encouraging, with orders placed by two of the world’s leading producers across a number of their production facilities in Europe.  Over the past two years, we have marketed our innovative solutions to the cement market, which has generated over £6 million of orders in that time.

Operating profits fell to £1.0 million (after adding back the costs of CPS head office expenses of £0.5m) from £1.2 million over the year. Additional costs were incurred with investment in people across sales, projects and engineering disciplines. 

§         North America

A major factor in the growth of this particular region has been the incorporation of MAC in to the Group.  However, the results in North America for the period under review account for only ten and a half months of MAC’s performance. 

In 2008, our North American operations contributed 69% of Group revenues, rising significantly by a factor of 18 to £43.2 million (2007: £2.3 million). Consequently, operating profits have risen to £4.2 million from £0.3 million over the past twelve months.   

MAC benefits from a diverse customer base with revenues derived from over 13,000 contracts. Many of these contracts have been secured in the food and petrochemical markets, where there is a continual demand for energy efficient material handling and air filtration solutions.  

§         Rest of Americas

This region is serviced through our Brazilian subsidiary, which has experienced strong growth during the period under review. In 2008, revenues grew by 64% to £1.8 million (2007: £1.1million). Operating profits rose to £0.3 million, which equated to a 25% rise from 2007.  Our Brazilian team have grown rapidly during the period under review and are currently seeking new premises to support their expanding operations. 

A significant proportion of our revenues in this region are generated from the steel industry, where we continue to expand our customer base in the mini blast furnace market.  In this industry we utilise our conveying and injection technologies to transport charcoal produced from replenished forests, which is the fuel used in these furnaces.  In addition, we have provided materials handling systems to steel producers in both Argentina and Colombia during the past twelve months. 

We have also secured our first order outside the steel industry in Brazil by supplying a conveying system for a market leading nickel producer, which represents a significant step in the market driven strategy of our business in the Rest of Americas.

§         Asia

Our Asian subsidiary, which is serviced by our Chinese operation in Beijing, saw revenues increase significantly to £2.2 million in 2008 from £1.6 million, a 38% increase from the previous year. Operating profits remained at £0.2 million for the year.  Our Chinese team have invested in personnel across every function of their business and have recently moved into larger premises to support their growth.  We are confident that China will be an increasing source of growth for the Group. 

Revenue growth for our Chinese business has been generated from the steel and copper markets, where we have supplied our conveying and injection solutions to transport coal, lime and metal concentrates.  We have also seen an increase in the number of valve and spares orders placed, which have been booked at healthy levels of contribution. 

Financial Performance

The Group’s financial performance has improved in the last twelve months and we continue to be excited by the wealth of opportunities that exist for our process solutions across our key customer markets. The financial results represent twelve months trading for Clyde Materials Handling and ten and a half months for MAC. 

In 2008, total Group revenue grew by £44.3 million to £61.6 million, an increase of 256% on last year (2007: £17.3 million). Operating profit grew by 174% to £5.2 million (2007: £1.9 million), with profits attributable to equity shareholders for the year also rising by 100% to £3.0 million (2007: £1.5 million). In addition, Group Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) for the year have risen by 209% to £6.5 million (2007: £2.1million).

The fully diluted earnings per share (EPS) reduced to 8.03p from the previous year comparative of 9.74p. However, this comparison does not give a true reflection of the movement between the two years. The adjusted EPS as explained in Note 4 of the announcement is included to provide a clearer comparison of the true movement in earnings per share between the two years and shows EPS increasing to 9.08p from 8.41p. This comparison of adjusted earnings per share reflects the earnings enhancing nature of the MAC acquisition.    

MAC performed, in dollar terms, in line with our expectations. However, the impact of the weak dollar had an adverse affect on the sterling result of the Group amounting to £0.2 million reduction at operating profit level. In addition as part of the funding requirements for the acquisition of MAC we put in place inter company loans – these loans were required to be in US dollars and were provided by CPS.  Due to the movements in exchange rates this has resulted in a £0.2 million charge to the income statement.  

As explained in the circular to shareholders dated 27 June 2006 the earn out shares payable under CMH’s acquisition agreement in July 2006 are to be issued dependent on the cumulative level of EBITDA of CMH for the 24 months ending 29 February 2008. The acquisition agreement stated that for every £1 that CMH’s cumulative EBITDA for the 24 months ending 29 February 2008 exceeded £1 million, 2.67 earn out shares would be issued, subject to a maximum of £9.5 million of earn out shares. 

CMH EBITDA for the 12 months ended 29 February 2008 was £1.810 million. Cumulative EBITDA for CMH for the 24 months ended 29 February 2008 is £4.072 million. Based on the acquisition agreement, it is anticipated that a total of 8.202m earn out shares will be issued for nil further consideration. 

Effect of Fair Value Adjustments

For the period under review, we have, in accordance with International Financial Reporting Standards (IFRSs), made fair value adjustments to the net assets acquired with MAC. As a consequence of the amortisation and write-off of these adjustments, there has been a direct cost impact to the Group’s income statement amounting to £635k of which £555k is a one-off non-recurring charge, as detailed both in note 3 and below.

  Dividend

The Board recognises the importance of dividend income to shareholders and are therefore delighted to announce that CPS will propose a maiden dividend payment of 1.05 pence per share at the annual general meeting on 24 July 2008.  

We will continue to adopt a progressive dividend policy, subject to the availability of distributable reserves, and the retention of funds required to finance future growth. We anticipate paying an interim and final dividend for each financial year. 

Board of Directors

We would like to thank all members of the Board for their continued support and commitment during this financial year. 

During the period under review we recruited two Non-Executive Directors to the Board in Geir Gunnlaugsson and Ian Lee. Geir has significant experience in process industries and currently chairs our Remuneration Committee. Ian has significant experience in audit and corporate governance and chairs both our Audit and AIM Committees. These appointments were made following the resignations of both Bill Thomson and Graham Lees and we would like to thank them both for their contributions to the Group as non-executive directors.  Gary Cavey, previously President and CEO of MAC, who joined the Board as an Executive Director following the acquisition in April 2007, has resigned from the Board of the Company on 3 June 2008. The Board would like to thank Gary for his contribution during his time with the Group. Jay Brown, previously MAC’s Chief Financial Officer, has become CEO at MAC and will focus on global integration and delivering on the significant synergies across the Group.  

Outlook

The opportunity for us to develop our market share, customer base, technology portfolio and global footprint have been strengthened significantly during the period under review by the incorporation of MAC into the Group.     

We have identified a number of territories and key customer markets that we will be targeting as a Group, and are confident that our integrated strategy will continue to yield solid returns for our shareholders.  We also believe our integrated approach will bolster the operational and financial performance of our global subsidiaries.  

Our key customer markets continue to present us with significant prospects as they seek to reduce energy consumption, non-renewable raw material utilisation and emission levels created from their production processes. Our customers, who operate in financially secure markets, continue to prioritise capital investments in reducing energy consumption and emission levels.  

At MAC, for example, we have created a low headroom, low maintenance air filtration system that is easily accessible, requires no tooling to replace cartridges within the system and consumes low volumes of energy compared to competitors air filtration solutions. This new air filtration system was developed in conjunction with a customer in the food industry to combat the issue of accessibility, increasing energy consumption, high maintenance costs and high emission levels.  We have now sold a large number of these systems across a range of key customer markets.  This is just one of a number of patentable applications in development across the Group. 

The Clyde-WorleyParsons joint venture is progressing steadily towards its first implementation and has recently signed an Intellectual Property (IP) agreement with one of its primary targets. This IP agreement is a major step forward in attracting a leading non-ferrous metals producer to have the Clyde-WorleyParsons pneumatic injection solution installed on a flash furnace.  

Organic growth will be the major focus of the Group’s development in the next year as we continue to recognise the synergies presented by the acquisition of MAC. 

In spite of the challenges faced with the impact of the non cash fair value adjustments and the weak dollar, together amounting to £1.0 million, we are pleased with the financial performance of the Group. We remain extremely positive about our prospects for the future and believe that our strategy, backed by a leading-edge technology portfolio, expanding global footprint, process experts and strong management will capitalise on the growing demand for our process solutions.

We are determined to build on another period of profitable growth and we thank all of our shareholders for their continued support. 

Consolidated Income Statement

Group Statement of Recognised Income and Expense