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RNS
Porvair PLC   -  PRV   

Results for the year ended 30 November 2018

Released 07:00 28-Jan-2019

RNS Number : 2029O
Porvair PLC
28 January 2019
 

For immediate release                                                                                                28 January 2019

 

Results for the year ended 30 November 2018

 

Record revenue, profit before tax and strong cash generation

Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its results for the year ended 30 November 2018.

Highlights

Strong financial performance:

·      Record revenue of £128.8 million (2017: £116.4 million), up 11%. 

·      Profit before tax up to a record £12.0 million (2017: £11.7 million).

·      Adjusted profit before tax* increased to £13.5 million (2017: £12.4 million).

·      Basic earnings per share up 13% to 22.1 pence (2017: 19.5 pence).

·      Adjusted basic earnings per share* up 11% to 22.9 pence (2017: 20.7 pence).

·      Net cash was £6.6 million at 30 November 2018 (2017: £9.8 million) after £13.5 million (2017: £11.4 million) invested in capital expenditure and acquisitions.

·      Recommended final dividend of 3.0 pence per share (2017: 2.7 pence per share), an increase of 11%.

·      Rohasys BV acquired and traded in line with expectations in its first year.

·      Keystone Filter acquired and integrated into the Aerospace & Industrial division.

·      Order books for 2019 are healthy, ahead of the prior year.

 

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

"The Group has started 2019 with a healthy order book and is trading well. The acquisitions made during the year have expanded the Group's capabilities in industrial and laboratory markets and are performing as expected. Porvair remains in a strong financial position."

 

*See note 1 for definition of alternative performance measures.

 

For further information please contact:

Porvair plc


020 7466 5000

today

Ben Stocks, Chief Executive


01553 765 500

thereafter

Chris Tyler, Group Finance Director




Buchanan Communications


020 7466 5000


Charles Ryland / Steph Watson




 

 

An analyst briefing will take place at 9:30 a.m. on Monday 28 January 2019 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 2018


2018


2017


Growth


£m


£m


%

Revenue

128.8


116.4


11

Adjusted profit before tax

13.5


12.4


9

Profit before tax

12.0


11.7


3

Adjusted earnings per share

22.9p


20.7p


11

Earnings per share

22.1p


19.5p


13







Cash generated from operations

15.3


12.3



Net cash

6.6


9.8



 

Revenue was £128.8 million, an increase of 11%. Demand across the Group's three divisions was generally robust, notably so in US industrial, nuclear, laboratory consumables, aluminium and specialist metal filtration.

Profit before tax was £12.0 million (2017: £11.7 million).  Adjusted profit before tax in the year ended 30 November 2018, excluding the items disclosed in note 1, was up 9% to a record £13.5 million. Adjusted earnings per share increased 11% to 22.9 pence. After investing £13.5 million in capital expenditure and acquisitions, the Group finished the year with net cash of £6.6 million.

Over the last five years the Group has delivered revenue growth of 53% (9% CAGR) and cash from operations of £68 million.  Adjusted profit before tax has increased 66% (11% CAGR). Over the same period, £42 million has been invested in capital projects and acquisitions. In 2018, the Group's after tax adjusted operating profit return on operating capital was 43% (2017: 48%).

Strategic statement

Porvair's strategy is to generate shareholder value through the development of specialist filtration and associated 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; and

·      Products are typically designed into a system that will have a long life-cycle.

This strategy continues to work for the Group, which moves into 2019 in a position of financial strength, able to invest in both organic and acquired growth as appropriate.

Business model outline

Our customers require filtration or emission control products that perform to a given specification. Orders are won by offering the best technical solutions for these requirements at an acceptable commercial cost. Filtration expertise is applicable across all markets served with new products generally being adaptations of existing designs. Experience in specific markets or applications is valuable in building customer confidence. Domain knowledge is important, as is deciding where to direct resources.



 

This leads us to:

1.   Focus on regulated markets where we see long term growth potential.

2.   Look for applications where product use is mandated and replacement demand is therefore regular.

3.   Make new product development a core business activity.

4.   Establish geographic presence where end-markets require.

5.   Invest in both organic and acquired growth.

Therefore:

·      We focus on three operating segments: Aerospace & Industrial; Laboratory; and Metal Melt Quality. All have clear structural growth drivers.

·      Our products typically protect complex downstream systems and as a result are replaced regularly.  A high proportion of our annual revenue is from repeat orders.

·      Through new product development the Group aims to generate growth rates in excess of the underlying market.  Where possible we build robust intellectual property around our product developments.

·      Our geographic presence follows the markets we serve. 52% of revenue is in the Americas; 19% in Asia; 15% in the EU and 13% in the UK. We aim to meet dividend and investment needs from free cash flow and modest borrowing facilities.  All investments are subject to a hurdle rate analysis based on strategic and financial priorities.

Operating structure

·      The Group operates with three divisions.  Each division addresses a core market: Aerospace & Industrial (approximately 40% of Group revenue); Laboratory (approximately 30% of Group revenue); and Metal Melt Quality (approximately 30% of Group revenue). 

·      The Group has plants in the US, UK, Germany, Netherlands and China.  In 2018, 57% of revenue was manufactured in the US, 30% in the UK, 9% in Continental Europe and 4% in China.

Investment and future development

The main investments during 2018 were:

·      The acquisition of Rohasys BV on 7 December 2017, bringing complementary instruments and automation expertise to Seal Analytical.

·      The acquisition of Keystone Filter on 28 February 2018, adding the manufacture of filter cartridges for the food, beverage and nuclear markets to our US Aerospace & Industrial division.

·      The expansion of our facility in Vineland, NJ, to provide increased manufacturing capacity, clean room capabilities and better plant layout.

·      Expansion and refurbishment of our microelectronics facility in Boise, ID.

·      A new manufacturing line for nuclear containment filters in Ashland, VA.

·      The commissioning of a new manufacturing line for bioscience filters in Wrexham, UK.

New product development remains core to Porvair's strategy, with incremental range extensions and increasing product differentiation being priorities. Our biggest project in 2018 was the overhaul and upgrade of Seal Analytical's core product, a segmented flow analyser. Our new AA500 analyser is smaller, faster, quieter and more accurate than any other on the market.



 

Divisional review

Aerospace & Industrial

 


2018


2017


Growth


£m


£m


%

Revenue

50.5


43.4


16

Inter segment revenue

-


(0.2)



External revenue

50.5


43.2


17







Operating profit

7.7


6.8


14

Adjusted operating profit

8.0


6.8


18

 

Reported revenue growth was 17%, but this includes sales transferred in from the Laboratory division and acquired growth. Underlying sales growth was 10% (note 1).  Adjusted operating profits in the division were up 18% to £8.0 million.

The division designs and manufactures a wide range of specialist filtration products, demand for which grows as aerospace and industrial customers seek cleaner, safer or more efficient operations.  Differentiation is achieved through design engineering, with notable new products introduced this year for the US nuclear market and aerospace inerting applications.

Demand in 2018 was good across industrial markets, notably in the US, where the Keystone acquisition contributed to growth in the second half.  The US had another record year for revenues and profits with nuclear and industrial orders robust.  After a quiet first half, aerospace orders increased in the second half and finished the year strongly.

Commissioning of the large gasification projects continued. These are complex power plants using new technology for which our filter systems are a relatively small but critical component. All three facilities - in Korea, India and China - experienced commissioning challenges during the year due to variations in feedstocks and operating conditions, but successful run time is accumulating. At this stage our filters are performing as expected, with spares orders delivered in the final quarter and scheduled for further deliveries in the first half of 2019.

Laboratory


2018


2017


Growth


£m


£m


%

Revenue

41.2


36.8


12

Inter segment revenue

(2.5)


(1.5)



External revenue

38.7


35.3


9







Operating profit

6.2


6.1


3

Adjusted operating profit

6.5


6.3


4

 

Revenue growth in the Laboratory division was 9%, including a full year of revenue from JG Finneran and the first year from Rohasys.  Adjusted operating profit grew 4%, Rohasys having contributed revenue but minimal profits in its first year of ownership.

The division serves the analytical laboratory market, where increasing availability of smaller automated instruments and the growing requirement for ever improving detection limits is driving demand for sample preparation and testing.  The Group addresses this market with analytical instruments and robotic systems supplied by Seal Analytical and a range of sample preparation and chromatography consumables supplied by Porvair Sciences and JG Finneran.

Seal Analytical had a good year, compensating for slower instrument sales into China with increased demand in the US. Seal is a leading supplier of instruments and consumables to environmental laboratories and specialises in equipment for the detection of inorganic contamination in water. This market grows as water quality standards improve. Seal differentiates itself with an active new product development programme which will be boosted in 2019 by the roll out of the new AA500, a product that offers significant benefits to Seal's extensive installed base. Rohasys finished its first year with sales and profits in line with the targets set at the time of the acquisition. Its automation expertise is accelerating our new product development programme. Seal's five-year CAGR revenue growth is 10%. 

Porvair Sciences manufactures laboratory filters and associated consumables, with a focus on chromatography and laboratory sample preparation products. Differentiation is through proprietary filtration media and manufacturing capabilities, with both benefitting from continued investment in 2018. During the year we acquired some filter coating intellectual property which we expect will add to our sample preparation capabilities.  Sales of bioscience filtration media increased 26%.  JG Finneran performed strongly in its first full year and will further benefit in 2019 from its improved and enlarged facilities.

Metal Melt Quality


2018


2017


Growth


£m


£m


%

Revenue

39.6


37.8


5%

Operating profit

2.4


1.7


37%

 

Revenue was up 5% (9% in constant currency (note 1)) to a record £39.6 million. Operating profit increased 37%.  Much improved US operational efficiencies were balanced by continuing losses in China.

 

This division serves three market segments and has a well differentiated and patented product range:

·      Selee CSX™ and Selee CSW™ for aluminium cast house filtration. These products are free of phosphates and ceramic fibres, giving them a unique environmental footprint.

·      Selee IC™ for grey 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 proprietary manufacturing techniques.

In the US, market share gains resulted in a fifth record year for sales of Selee CSX aluminium cast house filters.  Demand for super alloy filters grew and the range and volume of ceramic 3D manufactured products again increased.  Plant efficiencies in the US were excellent. This allowed the US business to report record margins.

 

Revenue in China grew by over 30%, but our Chinese plant is not yet at break even volumes and costs. As the Chinese aluminium market develops, we expect demand for our proprietary filters to grow, based on their demonstrably better quality and environmental performance. Higher grades of metal require better filtration and, in line with the Chinese Government's 'China 2025' initiative, Chinese producers are moving to higher grade alloys. We continue to sell on value rather than price. This can initially hold back growth, but our experience in other parts of the world gives us confidence that this remains the right strategy.

Dividends

The Board re-affirms its preference for a progressive dividend policy and recommends an increased final dividend of 3.0 pence per share, a cost of £1.4 million (2017: 2.7 pence per share, a cost of £1.2 million). This makes the full year dividend increase by 10% to 4.6 pence per share, a cost of £2.1 million (2017: 4.2 pence, a cost of £1.9 million).



 

Staff

The Board recognises that Porvair's success is largely due to the skill and commitment of its staff, to whom we offer our sincere thanks. During the year we welcomed new members of staff to the Group from both Keystone and Rohasys.

Charles Matthews stepped down from the Board at the 2018 AGM, at which time we expressed our gratitude and best wishes.

Current trading and outlook

The Group has started 2019 with a healthy order book and is trading well. The acquisitions made during the year have expanded the Group's capabilities in industrial and laboratory markets and are performing as expected. Porvair remains in a strong financial position.

Ben Stocks

Group Chief Executive

25 January 2019

Financial review

 

Group results


2018


2017


Growth


£m


£m


%

Revenue

128.8


116.4


11

Operating profit

12.9


12.3


4

Profit before tax

12.0


11.7


3

Profit for the year

10.0


8.8


13

 

Reported revenue growth was 11%, 13% at constant currency. 7% was from organic growth and 6% from acquisitions.  Operating profit was £12.9 million (2017: £12.3 million) and profit before tax was £12.0 million (2017: £11.7 million).  Profit for the year increased by 13% to £10.0 million.

Alternative performance measures


2018


2017


Growth


£m


£m


%

Adjusted operating profit

14.3


13.0


10

Adjusted profit before tax

13.5


12.4


9

Adjusted profit for the year

10.4


9.4


11

 

In addition to the constant currency revenue measures disclosed in previous years, the Group has presented other alternative performance measures for the first time this year to enable a better understanding of the Group's trading performance.  Adjusted operating profit and adjusted profit before tax exclude:

·      the impact of acquiring businesses:

the amortisation of acquired intangible assets of £0.6 million (2017: £0.2 million);

other adjustments to profit and loss related to acquiring businesses of £0.1 million (2017: £0.4 million).

·      other items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading:

an exceptional charge of £773,000 (2017: £nil), following recent legal guidance, to enhance the benefits provided by the Group's defined benefit pension plan to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.

Adjusted profit for the year excludes the adjustments to profit before tax above together with their tax effect and an exceptional one off tax credit of £778,000 (2017: £nil), reflecting a reduction in the Group's deferred tax liability from the change in US tax rates from December 2017 enacted in the US Tax Cuts and Jobs Act.

 

Group operating performance

The two recent acquisitions, Rohasys BV ("Rohasys") and Keystone Filter ("Keystone") contributed to revenue growth in the year but, as expected, neither contributed significantly to operating profit, consequently adjusted operating profit margins reduced slightly to 11.1% (2017: 11.2%).  Adjusted operating margins increased in the Aerospace & Industrial division to 15.9% (2017: 15.7%). In the Laboratory division adjusted operating margins reduced to 15.8% (2017: 17.0%), as a result of the acquisition of Rohasys and margin sharing with Aerospace & Industrial on the transfer of customers between divisions.  Metal Melt Quality operating margins increased to 6.0% (2017: 4.6%), a better performance in the US more than offsetting the increased losses in China.  Adjusted Central costs increased to £2.6 million (2017: £1.8 million).  The result in 2017 included the release of £1.0 million currency contract mark-to-market provisions.

Impact of exchange rate movements on performance

The international nature of the Group's business means that relative movements in exchange rates can affect reported performance.  The rate used for translating the results of overseas operations were:


2018


2017

Average rate for translating the results:




US $ denominated operations

$1.34:£


$1.29:£

Euro denominated operations

€1.13:£


€1.15:£





Closing rate for translating the balance sheet:




US $ denominated operations

$1.28:£


$1.35:£

Euro denominated operations

€1.13:£


€1.14:£

 

A stronger Sterling average rate against the US dollar offset by a weaker Sterling average rate against the Euro over the year reduced reported revenues on translation by 2%. 

In the year, the Group sold $17.8 million (2017: $16.0 million) at an average rate of $1.33:£1 (2017: $1.29:£1) and €3.9 million (2017: €5.5 million) at an average rate of €1.13:£1 (2017: €1.12:£1). 

At 30 November 2018, the Group had no outstanding forward foreign exchange contracts (2017: $2.0 million). It had $6.2 million (2017: $3.9 million) of net current assets on the UK operations' balance sheet. 

Finance costs

Net interest payable comprises bank borrowing costs, interest on the Group's pension deficit and the cost of unwinding discounts on provisions.  Overall, it remained stable at £0.8 million (2017: £0.7 million).  The defined benefit pension scheme interest cost was £0.4 million (2017: £0.4 million), bank interest and borrowing facilities non-utilisation fees were £0.3 million (2017: £0.3 million) and there was a charge of £0.1 million (2017: £nil) for unwinding discounted provisions. 

Interest cover was 17 times (2017: 20 times).  Interest cover on bank finance costs was 44 times (2017: 62 times).

Tax

The Group tax charge was £2.0 million (2017: £2.8 million).  After removing the adjusting items described in note 1 to the accounts, the Group's underlying tax charge was £3.1 million (2017: £3.0 million). This is an effective rate of 23.0% (2017: 24.4%), which is higher than the UK standard corporate tax rate of 19.0% (2017: 19.3%).  The tax rate in the UK compared with the standard rate was reduced by the benefit of tax relief on the exercise of share options.  The tax rate was pushed up by profits made in Germany, which attract a higher tax rate. The Group has not taken a tax credit relating to the losses arising in China because it could not be certain that the asset would be recovered, this has increased the tax rate by 3.2% (2017: 2.5%). 

The US tax rate reduced to an effective rate of 23% (2017: 31%) as a result of changes enacted in the US Tax Cuts and Jobs Act.  This has reduced the effective tax rate on Group trading profits by 3% compared with the prior year.

The tax charge comprises current tax of £2.7 million (2017: £2.1 million) and a deferred tax credit of £0.7 million (2017: charge of £0.8 million). 

The Group carries a deferred tax asset of £2.3 million (2017: £2.9 million) and a deferred tax liability of £2.0 million (2017: £2.2 million).  The deferred tax asset relates principally to the deficit on the pension fund and share-based payments.  The deferred tax liability relates to accelerated capital allowances, capitalised development costs and other timing differences, predominantly arising in the US. 



 

Total equity and distributable reserves

Total equity at 30 November 2018 was £89.5 million (2017: £74.9 million), an increase of 19% over the prior year. 

Increases in total equity arose from: profit after tax of £10.5 million (2017: £9.2 million) with the charge for employee share option schemes net of tax (2018: £0.4 million; 2017: £0.4 million) added back; £0.1 million (2017: £0.3 million) arising on the proceeds of the issue of shares on share option exercises; a pension scheme actuarial gain (net of tax) of £2.9 million (2017: nil); and exchange gains (net of tax) on translation of £3.5 million (2017: loss of £4.0 million).  In 2018 there was no impact of hedge accounting instruments (2017: gain of £0.2 million).

Reductions in total equity arose from dividends paid of £2.0 million (2017: £1.8 million) and purchases by the Employee Benefit Trust of the Company's own shares charged directly to equity of £0.4 million (2017: £0.5 million).

The Company had £19.5 million (2017: £12.6 million) of distributable reserves at 30 November 2018.  The Company's distributable reserves increased in the year as a result of dividends received from other Group companies and an actuarial gain offset by head office costs and dividends paid to shareholders. 

Return on capital employed

The Group's return on capital employed was 15% (2017: 16%).  Excluding the impact of goodwill and the net pension liability, the return on operating capital employed was 43% (2017: 48%).  The Group's divisions have pre-tax weighted average costs of capital of between 9% and 11%.

Cash flow

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


2018


2017


£m


£m

Operating cash flow before working capital

17.0


13.7

Working capital movement

(1.7)


(1.4)

Cash generated from operating activities

15.3


12.3

Interest

(0.3)


(0.2)

Tax

(2.4)


(2.7)

Capital expenditure net of disposals

(4.5)


(5.4)


8.1


4.0

Acquisitions

(9.0)


(5.9)

Dividends

(2.0)


(1.8)

Share issue proceeds

0.1


0.3

Purchase of EBT shares

(0.4)


(0.5)

Net cash decrease in the year

(3.2)


(3.9)

Exchange gains

-


0.1

Net cash at 1 December

9.8


13.6

Net cash at 30 November

6.6


9.8

 

Generating free cash flow is key to the Group's business model and operating cashflow of £15.3 million, represented an 88% (2017: 80%) conversion rate of operating profit before depreciation and amortisation.  Net working capital increased by £1.7 million (2017: £1.4 million), mainly arising in the Aerospace & Industrial division.  A particularly strong final month and purchases made for manufacture and delivery of the strong order book meant that receivables increased by £1.6 million (2017: £0.3 million) and inventories increased by £2.5 million (2017: £0.5 million).  Payables increased by £3.2 million (2017: £0.5 million).

Construction contracts and performance bonds

During the year a nuclear and a gasification contract were completed. Progress on a further nuclear contract and two gasification contracts is described in the Aerospace & Industrial section of Operating Review.  At 30 November 2018, the Group had £0.3 million (2017: £0.8 million) due from contract customers and net amounts due to contract customers of £7.3 million (2017: £8.0 million), representing the net amount by which progress billings at 30 November 2018 exceeded revenue recognised to date on these contracts.  The deferred revenue will be recognised as costs are incurred and/or profits recognised.

Contract customers generally provide advance payments to fund the initial stages of the contracts and the Group provides advance payment bonds to the customer as security.  The bonds are cancellable after up to six months following the shipment of goods.  At 30 November 2018 there were $2.4 million advance payment bonds outstanding (2017: £nil).

Contract customers also generally require performance bonds to cover risks arising during the contract warranty periods.  At 30 November 2018, the Group had $7.5 million (2017: $6.2 million) of performance bonds outstanding.

Capital expenditure

Capital expenditure was £4.5 million (2017: £5.4 million) in the year.  The principal investments in 2018 are described in the Investment section of the Operating review.  

Acquisitions

On 7 December 2017 the Group purchased 100% of the share capital of Rohasys B.V. ("Rohasys") to increase the Group's offering in the laboratory market. Rohasys manufactures robotic sample handling systems in the Netherlands.  The total maximum consideration is €3,548,000 (£3,118,000); €896,000 (£787,000) was paid in cash on the acquisition date, together with €502,000 (£441,000) to settle the outstanding loan.  The balance is contingent on financial performance and due for payment in cash over four years.  The contingent consideration is dependent on Rohasys meeting sales and profit targets and will be settled in cash.  €250,000 (£226,000) was paid in the year and, at 30 November 2018, €1.7 million (£1.5 million) was held in other payables.

On 28 February 2018 the Group purchased the net assets of Keystone Filter ("Keystone"), a division of CECO Environmental Corp.  Keystone designs and manufactures a range of filter cartridges and housings for the food and beverage, drinking water, and chemical process markets and is based in the USA.  The total consideration of $7,190,000 (£5,219,000) was paid in full in the year. 

Pension schemes

The Group supports its defined benefit pension scheme in the UK ("The Plan"), which is closed to new members, and provides access to defined contribution schemes for its US employees and other UK employees.

The Group's total pension cost was £3.7 million (2017: £2.7 million). £3.3 million (2017: £2.3 million) was recorded as an operating cost: £1.7 million (2017: £1.6 million) related to funding defined contributions schemes; £1.5 million (2017: £0.6 million) related to the charge for The Plan and £0.1 million (2017: £0.1 million) related to the pension protection levy.  £0.4 million (2017: £0.4 million) was charged as a finance cost in relation to The Plan. 

The Group's cash contributions paid to The Plan were £1.6 million (2017: £1.6 million). 

The Group's net retirement benefit obligation was £12.4 million (2017: £15.7 million).  The Plan's liabilities reduced to £39.2 million (2017: £43.8 million).  The Plan's assets reduced to £27.0 million (2017: £28.3 million). There were a further £0.2 million (2017 £0.2 million) of non-Plan liabilities.

The actuarial gain in the year was £3.6 million (2017: loss of £0.1 million).  The Plan's assets suffered an actuarial loss of £1.4 million.  The actuarial gain on the liabilities of £5 million arose principally from changes to the discount rate used to value The Plan's liabilities and a change in the mortality assumption:

·      The discount rate increased from 2.5% to 3.0%, as a result of higher AA bond yields, which accounted for most of the reduction of £3.2 million in liabilities arising on changes in financial assumptions.

·      During 2018, as a precursor to the triennial valuation, the Group reviewed the demographic assumptions used by The Plan.  To assess the most appropriate mortality assumption for The Plan, the Group commissioned a Medically Underwritten Mortality Study and a postcode mortality analysis from its actuarial advisers, KPMG.  The Company wrote to members of The Plan aged between 55 and 80 representing approximately 95% of the value of liabilities in that age range and 61% of the liabilities in total.  134 members completed the survey representing 63% of the liabilities in the 55 to 80 age range and 40% of the liabilities in total.  The medical underwriter's results were analysed by KPMG and combined with the findings of a postcode mortality analysis to arrive at an overall blended mortality assumption for The Plan.

This resulted in a multiplier applied to the SAPS series 2 base tables of 122% (2017: 106%) for the IAS 19 accounting valuation.  The allowance for future improvements used the 2017 CMI Core Projection (2017: 2016 CMI Core Projections) with a long term trend of 1.25% per annum.  The change in demographic assumptions modestly reduced the life expectancy assumed for the members and reduced the Group's defined pension scheme liabilities by £1.8 million.

The Plan's liabilities increased by £773,000 to amend the benefits provided by The Plan to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.  This additional liability was charged to the income statement.

The triennial actuarial valuation of The Plan determines the cash contributions that the Group makes to The Plan.  The next full actuarial valuation will be based on The Plan's position at 31 March 2018 and is expected to be completed before 30 June 2019.  For the previous valuation, based on data at 31 March 2015, the Group agreed to set the employer's contributions at 18.9% of salary.  Additionally, the Group committed to making a £0.2 million annual contribution towards the running costs of The Plan from April 2016, which will increase by 3.5% per annum thereafter.  The Group also committed to make additional annual contributions, to cover the past service deficit of £1.0 million per annum. 

Borrowings and bank finance

At the year end, the Group had cash balances of £11.5 million (2017: £12.5 million) and borrowings of £4.9 million (2017: £2.7 million). 

In 2017, the Group secured a five year revolving credit facility of €23 million (£20.4 million) with Barclays Bank plc and Handelsbanken plc.  The facility has a margin over LIBOR of 1.5% and a non-utilisation fee of 0.4375%.  The Group also has a £2.5 million overdraft facility provided by Barclays Bank plc.  The financial covenants require the Group to maintain interest cover of 3.5 times and net debt to be less than 2.5 times EBITDA.

At 30 November 2018, the Group had net cash of £6.6 million (2017: £9.8 million), €17.3 million (£15.3 million) of unused facilities (2017: €19.6 million of unused facilities (£17.2 million)) and an unutilised overdraft facility of £2.5 million (2017: £2.5 million). 

Finance and treasury policy

The treasury function at Porvair is managed centrally, under Board supervision.  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.

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

Adoption of new accounting standards

The Group will adopt IFRS 9 and 15 in its accounts for the year ending 30 November 2019 and will adopt IFRS 16 in its accounts for the year ending 30 November 2020.  The impact of the changes arising from the adoption of these new standards is expected to be immaterial to the opening reserves and performance of the Group.  Adopting IFRS 16 will result in the gross up of fixed assets and liabilities in the opening balance sheet of the 2020 accounts and adopting IFRS 15 will result in substantially all of the amounts due to contract customers included in accruals and deferred income in the 2018 accounts being converted to accruals for future costs in the opening balance sheet of the 2019 accounts.

International Trade 

Over 50% of Group revenues are manufactured in the US and changes to US tariff arrangements have had a modest effect on trading. A few customers in both the US and China have switched back to domestic suppliers, and the Group has both won and lost accounts as a result.  The net effect has been small.  Trading activity between the UK and the EU is less than 10% of Group revenues, so a significant perturbation due to Brexit is unlikely, nevertheless the implications of either a short term disturbance in the movement of goods or longer term tariff changes have been taken into account in the Group's planning for 2019.

 

 

Chris Tyler

Group Finance Director

25 January 2019



 

Consolidated income statement

For the year ended 30 November



Note

2018


2017

Continuing operations



£'000


£'000

Revenue


1,2

128,823


116,423

Cost of sales



(84,444)


(78,091)

Gross profit



44,379


38,332

Distribution costs



(2,172)


(1,645)

Administrative expenses



(29,339)


(24,348)

Adjusted operating profit


1,2

14,343


13,021

Adjustments






Equalisation of guaranteed minimum pension


1

(773)


-

Amortisation of acquired intangibles


1

(564)


(244)

Other acquisition related adjustments


1

(138)


(438)

Operating profit


1,2

12,868


12,339

Finance income



6


4

Finance costs



(836)


(661)

Profit before income tax


1,2

12,038


11,682

Adjusted income tax expense



(3,113)


(3,011)

Adjustments






Tax effect of adjustments to operating profit


1

325


171

Exceptional reduction of US deferred tax liability


1

778


-

Income tax expense



(2,010)


(2,840)

Profit for the year



10,028


8,842







Profit attributable to:






Owners of the parent



10,045


8,861

Non-controlling interests



(17)


(19)

Profit for the year



10,028


8,842







Earnings per share (basic)


3

22.1p


19.5p

Adjusted earnings per share (basic)


3

22.9p


20.7p







Earnings per share (diluted)


3

22.0p


19.4p

Adjusted earnings per share (diluted)


3

22.8p


20.5p

 

 

Consolidated statement of comprehensive income

For the year ended 30 November



2018

£'000


2017

£'000

Profit for the year


10,028


8,842

Other comprehensive income/(expense):





Items that will not be reclassified to profit and loss





Actuarial gains/(losses) in defined benefit pension plans net of tax


2,948


(66)

Items that may subsequently be classified to profit and loss





Exchange differences on translation of foreign subsidiaries


3,606


(3,985)

Tax relating to components of other comprehensive income


(149)


-

Changes in fair value of forex contracts held as a cash flow hedge


-


157



3,457


(3,828)

Net other comprehensive income/(expense)


6,405


(3,894)

Total comprehensive income for the year


16,433


4,948






Comprehensive income attributable to:





Owners of the parent


16,450


4,967

Non-controlling interests


(17)


(19)

Total comprehensive income for the year


16,433


4,948



 

Consolidated balance sheet

As at 30 November


Note

2018

£'000


2017

£'000

 

Non-current assets





 

Property, plant and equipment

5

21,827


19,997

Goodwill and other intangible assets

6

67,001


57,227

Deferred tax asset


2,304


2,933



91,132


80,157

Current assets





Inventories


19,856


16,067

Trade and other receivables


22,336


19,186

Derivative financial instruments


-


40

Cash and cash equivalents


11,492


12,497



53,684


47,790






Current liabilities





Trade and other payables

7

(32,826)


(27,736)

Current tax liabilities


(1,530)


(1,164)

Provisions for other liabilities and charges

10

(506)


(1,217)



(34,862)


(30,117)






Net current assets


18,822


17,673






Non-current liabilities





Borrowings

9

(4,867)


(2,711)

Deferred tax liability


(2,032)


(2,166)

Retirement benefit obligations


(12,356)


(15,670)

Other payables


(1,008)


(2,216)

Provisions for other liabilities and charges

10

(219)


(178)



(20,482)


(22,941)

Net assets


89,472


74,889






Capital and reserves





Share capital

11

917


913

Share premium account

11

35,958


35,831

Cumulative translation reserve


10,570


6,964

Retained earnings


42,024


31,161

Equity attributable to owners of the parent


89,469


74,869

Non-controlling interests


3


20

Total equity


89,472


74,889

 



Consolidated cash flow statement

For the year ended 30 November


Note


2018

£'000


2017

£'000

Cash flows from operating activities






Cash generated from operations

14


15,335


12,257

Interest paid



(345)


(220)

Tax paid



(2,419)


(2,741)

Net cash generated from operating activities



12,571


9,296







Cash flows from investing activities






Interest received



6


4

Acquisition of subsidiaries (net of cash acquired)

13


(9,007)


(5,932)

Purchase of property, plant and equipment

5


(3,796)


(5,248)

Purchase of intangible assets

6


(656)


(177)

Share capital from non-controlling interests



-


39

Net cash used in investing activities



(13,453)


(11,314)







Cash flows from financing activities






Proceeds from issue of ordinary share capital

11


131


325

Purchase of Employee Benefit Trust shares



(416)


(475)

Increase in borrowings



1,913


3,021

Dividends paid to shareholders

4


(1,957)


(1,769)

Net cash (used in)/from financing activities



(329)


1,102







Net decrease in cash and cash equivalents



(1,211)


(916)

Exchange gains/(losses) on cash and cash equivalents



206


(220)




(1,005)


(1,136)

Cash and cash equivalents at 1 December



12,497


13,633

Cash and cash equivalents at 30 November



11,492


12,497

 

Reconciliation of net cash flow to movement in net cash



2018

£'000


2017

£'000






Net decrease in cash and cash equivalents


(1,211)


(916)

Effects of exchange rate changes


(37)


90

Increase in borrowings


(1,913)


(3,021)

Net cash at 1 December


9,786


13,633

Net cash at 30 November


6,625


9,786

 



 Consolidated statement of changes in equity


 

Share capital

£'000

Share premium account

£'000

Cumulative translation reserve

£'000

 

Retained earnings

£'000

 

 

Total

£'000

Non-controlling interest

£'000

 

 

Total

£'000

Balance at 1 December 2016

906

35,513

10,949

24,078

71,446

-

71,446

Profit for the year

-

-

-

8,861

8,861

-

8,861

Other comprehensive income/(expense):

 

-

 

-

 

(3,985)

 

91

 

(3,894)

 

-

 

(3,894)

Total comprehensive income for the year

 

-

 

-

 

(3,985)

 

8,952

 

4,967

 

-

 

4,967

Transactions with owners:








Consideration paid for purchase of own shares (held in trust)

 

-

 

-

 

-

 

(475)

 

(475)

 

-

 

(475)

Employee share option schemes:








- value of employee services net of tax

 

-

 

-

 

-

 

375

 

375

 

-

 

375

Proceeds from shares issued

7

318

-

-

325

-

325

Dividends paid

-

-

-

(1,769)

(1,769)

-

(1,769)

Total transactions with owners recognised directly in equity

 

7

 

318

 

-

 

(1,869)

 

(1,544)

 

-

 

(1,544)

Adjustment arising from change in non-controlling interest

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

20

 

 

20

Balance at 30 November 2017

913

35,831

6,964

31,161

74,869

20

74,889

Balance at 1 December 2017

913

35,831

6,964

31,161

74,869

20

74,889

Profit for the year

-

-

-

10,045

10,045

-

10,045

Other comprehensive income:

-

-

3,606

2,799

6,405

-

6,405

Total comprehensive income for the year

 

-

 

-

 

3,606

 

12,844

 

16,450

 

-

 

16,450

Transactions with owners:








Consideration paid for purchase of own shares (held in trust)

 

-

 

-

 

-

 

(416)

 

(416)

 

-

 

(416)

Employee share option schemes:








- value of employee services net of tax

 

-

 

-

 

-

 

392

 

392

 

-

 

392

Proceeds from shares issued

4

127

-

-

131

-

131

Dividends paid

-

-

-

(1,957)

(1,957)

-

(1,957)

Total transactions with owners recognised directly in equity

 

4

 

127

 

-

 

(1,981)

 

(1,850)

 

-

 

(1,850)

Adjustment arising from change in non-controlling interest

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(17)

 

 

(17)

Balance at 30 November 2018

917

35,958

10,570

42,024

89,469

3

89,472



Notes

 

1.             Alternative performance measures

The Group uses adjusted figures as alternative performance measures in addition to those reported under IFRS, as management believe that these measures provide a useful analysis of trends in underlying performance compared with prior periods. 

 

Alternative revenue measures



2018


2017


Growth

Aerospace & Industrial


£'000


£'000


%

Underlying revenue


47,916


43,651


10

Divisional adjustment


-


(1,955)



Acquisitions


1,671


-



Revenue at constant currency


49,587


41,696


19

Exchange


949


1,553



Revenue as reported


50,536


43,249


17








Laboratory







Underlying revenue


25,970


26,075


0

Divisional adjustment


-


1,955



Acquisitions


11,291


5,866



Revenue at constant currency


37,261


33,896


10

Exchange


1,398


1,430



Revenue as reported


38,659


35,326


9








Metal Melt Quality







Revenue at constant currency


37,678


34,707


9

Exchange


1,950


3,141



Revenue as reported


39,628


37,848


5








Group







Underlying revenue


111,564


104,433


7

Acquisitions


12,962


5,866



Revenue at constant currency


124,526


110,299


13

Exchange


4,297


6,124



Revenue as reported


128,823


116,423


11

 

Revenue at constant currency is derived from translating overseas subsidiaries at budgeted fixed exchange rates.  In 2018 and 2017 the rates used were $1.4:£ and €1.2:£.

 

Underlying revenue is revenue at constant currency adjusted for the impact of acquisitions made in the current and prior year and, in the case of 2017, the impact of accounts that were managed by the Laboratory division in 2017 but transferred to Aerospace & Industrial in 2018.



 

1.             Alternative performance measures continued

 

Alternative profit measures

A reconciliation of the Group's adjusted performance measures to the reported IFRS measures is presented below:

 

 



2018




2017


 


Adjusted

£'000

Adjustments

£'000

Total

£'000


Adjusted

£'000

Adjustments

£'000

Total

£'000

Operating profit

14,343

(1,475)

12,868


13,021

(682)

12,339

Finance income

6

-

6


4

-

4

Finance costs:

(836)

-

(836)


(661)

-

(661)

Profit before income tax

13,513

(1,475)

12,038


12,364

(682)

11,682

Income tax expense

(3,113)

1,103

(2,010)


(3,011)

171

(2,840)

Profit for the year

10,400

(372)

10,028


9,353

(511)

8,842

 


2018


2017


£'000


£'000

Equalisation of guaranteed minimum pension

(773)


-

Amortisation of intangible assets acquired through acquisitions

(564)


(244)

Release of contingent consideration

-


20

Acquisition expenses

(138)


(458)

Adjustments affecting operating profit

(1,475)


(682)





Tax effect of adjustments

325


171

Tax - exceptional item

778


-

Adjustments affecting tax

1,103


171

Total adjusting items

(372)


(511)

 

Adjusted operating profit and adjusted profit before tax exclude:

·      the impact of acquiring businesses:

the amortisation of acquired intangible assets of £0.6 million (2017: £0.2 million); and

acquisition expenses and other adjustments to the income statement related to acquiring businesses of £0.1 million (2017: £0.4 million).

·      other items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading:

an exceptional charge of £773,000 (2017: £nil), following recent legal precedent, to enhance the benefits provided by the Group's defined benefit pension plan to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.

Adjusted profit for the year excludes the adjustments to profit before tax together with their tax effect and an exceptional one off tax credit of £778,000 (2017: £nil) reflecting a reduction in the Group's deferred tax liability from the change in US tax rates from December 2017 enacted in the US Tax Cuts and Jobs Act.



 

2.             Segment information

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

 

2018

Aerospace & Industrial


Laboratory


Metal Melt Quality


Central


Group


£'000


£'000


£'000


£'000


£'000

Total segment revenue

50,546


41,181


39,628


-


131,355

Inter-segment revenue

(10)


(2,522)


-


-


(2,532)

Revenue

50,536


38,659


39,628


-


128,823











Adjusted operating profit/(loss)

 

8,043


 

6,494


 

2,373


 

(2,567)


 

14,343

Equalisation of guaranteed minimum pension

 

-


 

-


 

-


 

(773)


 

(773)

Amortisation of acquired intangibles

 

(302)


 

(255)


 

(7)


 

-


 

(564)

Other acquisition related adjustments

 

-


 

-


 

-


 

(138)


 

(138)

Operating profit/(loss)

7,741


6,239


2,366


(3,478)


12,868

Interest payable and similar charges

 

-


 

-


 

-


 

(830)


 

(830)

Profit/(loss) before income tax

 

7,741


 

6,239


 

2,366


 

(4,308)


 

12,038

Income tax expense

-


-


-


(2,010)


(2,010)

Profit/(loss) for the year

 

7,741


 

6,239


 

2,366


 

(6,318)


 

10,028

 

2017

Aerospace & Industrial


Laboratory


Metal Melt Quality


Central


Group


£'000


£'000


£'000


£'000


£'000

Total segment revenue

43,407


36,774


37,848


-


118,029

Inter-segment revenue

(158)


(1,448)


-


-


(1,606)

Revenue

43,249


35,326


37,848


-


116,423











Adjusted operating profit/(loss)

 

6,825


 

6,255


 

1,745


 

(1,804)


 

13,021

Amortisation of acquired intangibles

 

(42)


 

(189)


 

(13)


 

-


 

(244)

Other acquisition related adjustments

 

-


 

-


 

-


 

(438)


 

(438)

Operating profit/(loss)

6,783


6,066


1,732


(2,242)


12,339

Interest payable and similar charges

 

-


 

-


 

-


 

(657)


 

(657)

Profit/(loss) before income tax

 

6,783


 

6,066


 

1,732


 

(2,899)


 

11,682

Income tax expense

-


-


-


(2,840)


(2,840)

Profit/(loss) for the year

6,783


6,066


1,732


(5,739)


8,842

 

Other Group operations are included in "Central".  These mainly comprise Group corporate expenditure such as head office and Board costs, new business development and general financial costs. 

 



 

2.             Segment information continued

 

Segment assets and liabilities

 

At 30 Nov 2018

Aerospace & Industrial


Laboratory


Metal Melt Quality


Central


Group


£'000


£'000


£'000


£'000


£'000

Segmental assets

59,655


37,608


33,869


2,192


133,324

Cash and cash equivalents

 

-


 

-


 

-


 

11,492


 

11,492

Total assets

59,655


37,608


33,869


13,684


144,816











Segmental liabilities

(18,610)


(11,365)


(3,999)


(4,147)


(38,121)

Retirement benefit obligations

 

-


 

-


 

-


 

(12,356)


 

(12,356)

Bank overdraft and loans

 

-


 

-


 

-


 

(4,867)


 

(4,867)

Total liabilities

(18,610)


(11,365)


(3,999)


(21,370)


(55,344)

 

At 30 Nov 2017

Aerospace & Industrial


Laboratory


Metal Melt Quality


Central


Group


£'000


£'000


£'000


£'000


£'000

Segmental assets

46,985


30,250


35,222


2,993


115,450

Cash and cash equivalents

 

-


 

-


 

-


 

12,497


 

12,497

Total assets

46,985


30,250


35,222


15,490


127,947











Segmental liabilities

(15,979)


(7,690)


(3,917)


(7,091)


(34,677)

Retirement benefit obligations

 

-


 

-


 

-


 

(15,670)


 

(15,670)

Bank overdraft and loans

 

-


 

-


 

-


 

(2,711)


 

(2,711)

Total liabilities

(15,979)


(7,690)


(3,917)


(25,472)


(53,058)

 

Geographical analysis


2018


2017


By destination

£'000


By origin

£'000


By destination

£'000


By origin

£'000

Revenue








United Kingdom

16,494


38,984


15,529


37,122

Continental Europe

19,322


10,949


15,156


10,120

United States of America

56,159


73,979


51,989


66,187

Other NAFTA

8,304


-


8,793


-

South America

2,206


-


1,658


-

Asia

24,914


4,911


22,004


2,994

Africa

1,424


-


1,294


-


128,823


128,823


116,423


116,423

 



 

3.             Earnings per share


2018


2017

Total

 

 

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

 

10,045




 

8,861

 

 


Shares in issue


45,705,419




45,429,715


Shares owned by the Employee Benefit Trust


 

(156,552)




 

(63,618)


Basic earnings

10,045

45,548,867

22.1


8,861

45,366,097

19.5

Effect of dilutive securities - share options


 

102,380

 

(0.1)


 

 

 

262,585

 

(0.1)

Diluted earnings

10,045

45,651,247

22.0


8,861

45,628,682

19.4

 


2018


2017

Adjusted

 

 

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

 

10,045




 

8,861

 

 


Adjusting items (note 1)

372




511



Adjusted earnings attributable to ordinary shareholders

 

 

10,417




 

 

9,372



Adjusted basic earnings

10,417

45,548,867

22.9


9,372

45,366,097

20.7

Adjusted diluted earnings

10,417

45,651,247

22.8


9,372

45,628,682

20.5

 

4.             Dividends per share


2018


2017


Per share

£'000


Per share

£'000

Final dividend paid

2.7p

1,229


2.4p

1,088

Interim dividend paid

1.6p

728


1.5p

681


4.3p

1,957


3.9p

1,769

 

The Directors recommend the payment of a final dividend of 3.0 pence per share (2017: 2.7 pence per share) on 7 June 2019 to shareholders on the register on 3 May 2019; the ex-dividend date is 2 May 2019.  This makes a total dividend for the year of 4.6 pence per share (2017: 4.2 pence per share).



 

 

5.            Property, plant and equipment

 



Land and buildings


Assets in the course of construction


Plant, machinery and equipment


Total

Cost


£'000


£'000


£'000


£'000

At 1 December 2017


9,939


1,280


35,539


46,758

Reclassification


173


(975)


802


-

Additions


704


1,827


1,265


3,796

Acquisitions


-


-


192


192

Disposals


(4)


-


(156)


(160)

Exchange differences


394


46


1,165


1,605

At 30 November 2018


11,206


2,178


38,807


52,191

 

Depreciation









At 1 December 2017


(2,964)


-


(23,797)


(26,761)

Charge for the year


(318)


-


(2,522)


(2,840)

Disposals


4


-


156


160

Exchange differences


(127)


-


(796)


(923)

At 30 November 2018


(3,405)


-


(26,959)


(30,364)

 

Net book value









At 30 November 2018


7,801


2,178


11,848


21,827

At 30 November 2017


6,975


1,280


11,742


19,997

 

6.             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 2017

 

56,309


 

158


 

232


 

528


 

57,227

Additions

-


115


541


-


656

Acquisitions

4,036


-


2


3,218


7,256

Amortisation charges

-


(76)


(54)


(637)


(767)

Exchange differences

2,416


11


18


184


2,629

Net book amount at 30 November 2018

 

62,761


 

208


 

739


 

3,293


 

67,001

 

At 30 November 2018

 

 

 

Goodwill


 

Development expenditure capitalised


 

 

Software capitalised


Trademarks, knowhow and other intangibles


 

 

 

Total


£'000


£'000


£'000


£'000


£'000

Cost

81,429


890


1,882


5,324


89,525

Accumulated amortisation and impairment

 

 

(18,668)


 

 

(682)


 

 

(1,143)


 

 

(2,031)


 

 

(22,524)

Net book amount

62,761


208


739


3,293


67,001

 



 

 

7.             Trade and other payables

 

Amounts falling due within one year:

2018

£'000


2017

£'000

Trade payables

12,046


9,503

Taxation and social security

628


814

Other payables

2,884


2,318

Accruals and deferred income

17,268


15,101

At 30 November

32,826


27,736

 

8.             Construction contracts


2018

£'000


2017

£'000

Amounts due from contract customers included in trade receivables

329


834

Contracts in progress at 30 November:




Amounts due from contract customers included in other receivables

460


211

Amounts due to contract customers included in accruals and deferred income

(7,728)


(8,210)

Net amounts due to contract customers

(7,268)


(7,999)

Contract costs incurred plus recognised profits less recognised losses to date

32,805


45,165

Less: progress billings

(40,073)


(53,164)

Contracts in progress at 30 November

(7,268)


(7,999)

 

The amount of construction contract revenue recognised in the year is £2,640,000 (2017: £910,000).

 

9.             Borrowings

On 24 May 2017, the Group agreed a five year revolving credit facility of €23 million (£20 million) with Barclays Bank plc and Handelsbanken plc.  The Group also has a £2.5 million overdraft facility provided by Barclays Bank plc.

At 30 November 2018, the Group had €17.3 million of unused facilities (2017: €19.6 million of unused facilities) and an unutilised overdraft facility of £2.5 million (2017: £2.5 million). 

 

10.          Provisions


Dilapidations


Warranty


Total


£'000


£'000


£'000

At 1 December 2017

178


1,217


1,395

Released in the year

-


(711)


(711)

Charged to the consolidated income statement:






Unwinding of discount

41


-


41

At 30 November 2018

219


506


725

 

 

Analysis of total provisions:

2018

£'000


2017

£'000

Current

506


1,217

Non-current

219


178

At 30 November

725


1,395

 

Provisions arise from a discounted dilapidations provision for leased property, which is expected to be required in 2023 and sale warranties which expire by 2020.  The amount released in the year of £711,000 arose on the completion of contracts.

 



 

11.          Share capital and premium



Number of shares


Ordinary shares

 


Share premium account


Total

 



Thousands


£'000


£'000


£'000

At 1 December 2017


45,641


913


35,831


36,744

Issue of shares on exercise of share options


 

202


 

4


 

127


 

131

At 30 November 2018


45,843


917


35,958


36,875

 

In February, March, April, June, July and September 2018, 51,049 ordinary shares of 2 pence each were issued on the exercise of Save As You Earn share options for cash consideration of £128,000.  In September 2018, 151,375 ordinary shares of 2 pence each were issued on the exercise of Long Term Share Plan share options for cash consideration of £3,000. 

 

The Group uses an Employee Benefit Trust (EBT) to purchase shares in the Company to satisfy entitlements, granted since the Company's AGM in 2015, under the Group's Long Term Incentive Plan.  During the year the Group purchased 84,000 ordinary shares of 2 pence each (2017: 92,000) for a total consideration of £416,000 (2017: £475,000).  The cost of the shares held by the EBT is deducted from retained earnings.  The EBT is financed by a repayable-on-demand loan from the Group of £968,000 (2017: £552,000).  As at 30 November 2018 the EBT held a total of 196,000 ordinary shares of 2 pence each (2017: 112,000) at a cost of £968,000 (2017: £552,000) and a market value of £833,000 (2017: £521,000).

 

12.          Acquisitions

On 7 December 2017 the Group, through its subsidiary Seal Analytical Limited, purchased 100% of the share capital of Rohasys B.V. ("Rohasys") in order to increase the Group's offering in the laboratory market. The trade is the manufacture of robotic sample handling systems and is based in the Netherlands.  The total maximum consideration is €3,548,000 (£3,118,000); €896,000 (£787,000) of this was paid in cash on the acquisition date, together with €502,000 (£441,000) to settle the outstanding loan.  The balance is contingent on financial performance and payable in instalments until 2021; the first €250,000 (£226,000) instalment of contingent consideration was paid in March 2018. 

 

The contingent consideration is dependent on Rohasys meeting sales and profit targets, and will be settled in cash.  Management has forecast that payment of 99% of the maximum contingent consideration, €2,136,000 (£1,877,000), is the most probable outcome.  This was discounted to €1,878,000 (£1,650,000) using the discount rate of 14.5%, calculated for Rohasys.  A reduction in the annual sales by €200,000 (£177,000), which is considered a reasonable possible alternative, would reduce the future contingent liability by €30,000 (£27,000).  In the period since acquisition, the business has contributed €2,378,000 (£2,101,000) sales and €83,000 (£73,000) operating profit to the Group results.  The direct costs of acquisition charged to the income statement were £35,000.  If Rohasys had been consolidated from 1 December 2017, the consolidated statement of income would show pro-forma revenue of £128,823,000 and underlying operating profit of £12,886,000.

 







Total







£'000

Purchase consideration:







Cash paid






787

Loan repaid






441

Contingent consideration






1,650

Total purchase consideration






2,878

Fair value of net assets acquired






(1,070)

Goodwill






1,808

 

 



 

12.          Acquisitions continued

 

Provisional recognised amounts of identifiable assets acquired and liabilities assumed


 

Fair value







£'000

Property, plant and equipment






22

Software






2

Trade name






72

Knowhow






318

Customer list






528

Inventory






393

Trade receivables






369

Trade payables






(425)

Deferred tax liabilities






(229)

Other working capital (net)






20

Net assets acquired






1,070








Purchase consideration settled in cash






787

Cash outflow on acquisition






787

 

An independent valuation of the identifiable intangible assets has been carried out in the period.  The goodwill is attributable to the non-contractual relationships, the synergies between the business acquired and the existing operations of the Group and the potential to develop the technologies acquired. The goodwill recognised is attributable to the Laboratory division and is not expected to be deductible for income tax purposes.  The purchase has been accounted for as an acquisition. The intangible assets arising on the acquisition are to be written off between three and ten years.

 

On 28 February 2018 the Group, through its subsidiary Porvair Filtration Group Inc., purchased the net assets of Keystone Filter ("Keystone"), a division of CECO Environmental Corp. The trade is the design and manufacture of a range of filter cartridges and housings for the food and beverage, drinking water, and chemical process markets and is based in the USA.  The total consideration is $7,190,000 (£5,219,000); $5,290,000 (£3,840,000) of this was paid on 28 February 2018, with the balance deferred and paid in August 2018.  In the period since acquisition, the business has contributed $2,342,000 (£1,747,000) sales and $133,000 (£99,000) of underlying operating profit to the Group results.  The direct costs of acquisition charged to the income statement were $77,000 (£56,000).  If Keystone had been consolidated from 1 December 2017, the consolidated statement of income would show pro-forma revenue of £129,463,000 and underlying operating profit of £12,999,000

 







Total







£'000

Purchase consideration:







Cash paid






3,840

Deferred consideration






1,379

Total purchase consideration






5,219

Fair value of net assets acquired






(2,991)

Goodwill






2,228

 



 

12.          Acquisitions continued

 

Provisional recognised amounts of identifiable assets acquired and liabilities assumed


 

Fair value







£'000

Property, plant and equipment






170

Trade name






208

Order backlog






73

Customer list






2,019

Inventory






372

Trade receivables






325

Trade payables






(171)

Other working capital (net)






(5)

Net assets acquired






2,991








Purchase consideration settled in cash






3,840

Cash outflow on acquisition






3,840

 

An independent valuation of the identifiable intangible assets has been carried out in the period.  The goodwill is attributable to the non-contractual relationships, the synergies between the business acquired and the existing operations of the Group and the potential to develop the technologies acquired. The goodwill recognised is attributable to the Aerospace & Industrial division and is expected to be deductible for income tax purposes.  The purchase has been accounted for as an acquisition. The intangible assets arising on the acquisition are to be written off between three and ten years.

 

13.          Deferred and contingent consideration on acquisitions

 


Rohasys


Keystone


JG Finneran Associates Inc.


Total


£'000


£'000


£'000


£'000

At 1 December 2017

-


-


4,432


4,432

Purchase consideration in the year

2,878


5,219


-


8,097

Cash paid in the year

(1,454)


(5,302)


(2,251)


(9,007)

Recognised in the income statement

95


-


-


95

Exchange movements

22


83


170


275

At 30 November 2018

1,541


-


2,351


3,892

 

Included within other payables

2018

£'000


2017

£'000

Deferred and contingent consideration - current

2,884


2,216

Deferred and contingent consideration - non-current

1,008


2,216

At 30 November

3,892


4,432

 

14.          Cash generated from operations




2018

£'000


2017

£'000

Operating profit



12,868


12,339

Post-employment benefits



(136)


(963)

Fair value movement of derivatives through profit and loss



40


(1,461)

Share based payments



610


508

Depreciation, amortisation and impairment



3,607


3,228

Operating cash flows before movement in working capital



16,989


13,651

Increase in inventories



(2,494)


(523)

Increase in trade and other receivables



(1,570)


(287)

Increase in payables



3,216


545

Decrease in provisions



(806)


(1,129)

Increase in working capital



(1,654)


(1,394)

Cash generated from operations



15,335


12,257

 

15.          Basis of preparation 

The results for the year ended 30 November 2018 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union as at 30 November 2018.  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 2018, 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 2017, upon which the auditors reported without qualification, have been delivered to the Registrar of Companies.

 

16.          Annual general meeting

The Company's Annual General Meeting will be held at 11.00 a.m. on Thursday 11 April 2019 at the offices of Porvair Sciences Limited, Clywedog Road South, Wrexham Industrial Estate, Wrexham, LL13 9XS.

 

17.          Related parties

There were no related party transactions in the year ended 30 November 2018.

 

18.          Responsibility Statement

Each of the Directors confirms, to the best of their 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 2017.  Charles Matthews resigned from the Board on 17 April 2018.  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 2019. Additional copies will be available from www.porvair.com. 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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Results for the year ended 30 November 2018 - RNS