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RNS
Porvair PLC   -  PRV   

Preliminary Results and Board Changes

Released 07:00 03-Feb-2020

RNS Number : 6573B
Porvair PLC
03 February 2020
 

For immediate release                                                                                                3 February 2020

 

 

Results for the year ended 30 November 2019

Board changes

 

Record revenue and 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 2019.

Highlights

·      Record revenue was up 13% to £144.9 million (2018: £128.8 million), 10% on a constant currency basis*.

·      Profit before tax was up 16% to a record £14.0 million (2018: £12.0 million).

·      Adjusted profit before tax* was up 9% to £14.8 million (2018: £13.5 million).

·      Basic earnings per share were up 7% to 23.6 pence (2018: 22.1 pence) per share. 

·      Adjusted basic earnings per share* up 10% to 25.3 pence (2018: 22.9 pence) per share.

·      Net cash was £4.0 million (2018: £6.6 million) at 30 November 2019 after £14.1 million (2018: £13.5 million) invested in acquisitions and capital expenditure.

·      Recommended final dividend of 3.2 pence (2018: 3.0 pence) per share, an increase of 7%.

·      Dahlman Industrial Group B.V. ("Royal Dahlman") was acquired for £7.0 million in September 2019 and traded in line with expectations in its first quarter.

 

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

 

"These results demonstrate the benefits of Porvair's strategy.  Some segments have grown in 2019, others have maintained momentum through operational improvements.  2020 is likely to be similar.  The Group's fundamentals are robust.  Over the last ten years, Porvair has delivered revenue growth of 162% (10% CAGR). The Group is positioned to benefit from global trends: tighter environmental regulations; growth in analytical science; the expansion of air travel; the replacement of plastic by aluminium; and the drive for manufacturing process efficiency. These trends offer opportunities for which the Group develops differentiated products. Trading in 2020 has started well, order books are healthy and investment plans are on track.  Recent acquisitions are trading as expected.  The Group is looking forward with confidence."

 

* See notes 1 and 3 for definitions and reconciliations.

 

For further information please contact:

Porvair plc

 

01553 765 500

 

Ben Stocks, Chief Executive

 

 

 

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 3 February 2020 at Buchanan, 107 Cheapside, London EC2V 6DN.  An audio webcast recording will be available after 12pm today at: https://webcasting.buchanan.uk.com/broadcast/5e33e893b9710760e2924f03 .  A copy of the webcast and the presentation will be available at www.porvair.com.

Operating review

Overview of 2019

 

2019

 

2018

 

Growth

 

£m

 

£m

 

%

Revenue

144.9

 

128.8

 

13

Operating profit

14.8

 

12.9

 

15

Adjusted operating profit*

15.6

 

14.3

 

9

Adjusted profit before tax*

14.8

 

13.5

 

9

Profit before tax

14.0

 

12.0

 

16

Adjusted earnings per share*

25.3p

 

22.9p

 

10

Earnings per share

23.6p

 

22.1p

 

7

 

 

 

 

 

 

Cash generated from operations

16.8

 

15.3

 

 

Net cash

4.0

 

6.6

 

 

* see note 1

Revenue growth was 13% (10% at constant currency).  Strength in aerospace and industrial was partially offset by a slower start to the year in markets affected by global trade disturbances.

Profit before tax rose 16%.  Adjusted (see note 1) profit before tax rose 9% and adjusted earnings per share increased 10% to 25.3 pence.  The Group invested £14.1 million (2018: £13.5 million) in acquisitions and capital expenditure in 2019.

The Group's five and ten year record for growth, cash generation and investment is as follows:

 

5 years

 

10 years

 

CAGR

 

CAGR

Revenue growth

7%

 

10%

Earnings per share growth

10%

 

31%

Adjusted earnings per share growth

12%

 

25%

 

 

 

 

 

£m

 

£m

Cash from operations

71

 

123

Investment in acquisitions and capital expenditure

51

 

70

 

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 well for the Group, which, from a position of relative financial strength, invests 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, with new products often 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 the Group to:

1.   Focus on markets with long term growth potential.

2.   Look for applications where product use is mandated and replacement demand is 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 clean, or confine emissions to protect downstream systems and as a result are replaced regularly.  A high proportion of our annual revenue is from repeat orders.

·      Through a focus on new product development, we aim to generate growth rates in excess of the underlying market.  Where possible, we build intellectual property around our product developments.

·      Our geographic presence follows the markets we serve.  In the last twelve months: 50% of revenue was in the Americas; 23% in Asia; 15% in Continental Europe; 11% in the UK; and 1% in Africa.  The Group has plants in the US, UK, Germany, the Netherlands and China.  In the last twelve months, 52% of revenue was manufactured in the US, 35% in the UK, 9% in Continental Europe and 4% in China.

·      We aim to meet dividend and investment needs from free cash flow and modest borrowing facilities.  In recent years we have expanded manufacturing capacity in the UK, Germany, US and China and made several acquisitions.  All investments are subject to a hurdle rate analysis based on strategic and financial priorities.

 

Corporate social responsibility

The Board recognises that responsible and sustainable business development is essential for creating long term value for stakeholders.  Most of the products made by Porvair are used to the benefit of the environment.  Our water analysis equipment measures contamination levels in water.  Industrial filters are typically needed to reduce emissions or improve efficiency. Aerospace filters improve process reliability. Nuclear filters confine fissile materials.  Metal Melt Quality filters reduce waste and help improve the strength to weight ratio of metal components.  Our manufacturing facilities have limited emissions and we aim to reduce carbon intensity each year.  A full Corporate Social Responsibility report is given as part of the Group's Annual Report.

 

Aerospace & Industrial

 

 

2019

 

2018

 

Growth

 

£m

 

£m

 

%

Revenue

64.6

 

50.5

 

28

 

 

 

 

 

 

Operating profit

8.2

 

7.7

 

6

Adjusted operating profit*

8.5

 

8.0

 

6

* see note 2

 

The Aerospace & Industrial 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; the development of intellectual property; and quality accreditations.

Revenue increased by 28% (26% at constant currency).  Within the market segments served demand across the year was mixed.  Shipments of spares for gasification accounted for revenue of £10.9 million (2018: £1.9 million).  As noted previously, sales of these filters should repeat but will not be regular and are not expected to approach such levels in 2020.  Aerospace offers more consistent growth, up 15% in the year, with demand driven by new work with Boeing, Bombardier and in fuel system inerting products.  In the US, demand for marine emissions control filters was robust, with new regulations issued by the International Maritime Organization requiring tighter standards for the disposal of ballast water. These stronger areas were offset by weakness in microelectronics and certain US general industrial customers affected by US/China trade issues.

Investments were made to expand the plant in Boise, ID; to increase machining capacity in the UK; and in manufacturing productivity improvements across the division.

In September 2019 the Group acquired Royal Dahlman. Based in the Netherlands, Royal Dahlman specialises in industrial filtration and has particular expertise in certain petrochemical applications for which emission standards are expected to tighten.  The business also offers well established routes to market in Benelux and Northern Europe, through which the combined business can offer its wider product range.  It has been integrated into the division and traded as expected since acquisition.

Laboratory

 

2019

 

2018

 

Growth

 

£m

 

£m

 

%

Revenue

43.7

 

41.2

 

6

Inter segment revenue

(2.4)

 

(2.5)

 

 

External revenue

41.3

 

38.7

 

7

 

 

 

 

 

 

Operating profit

6.4

 

6.2

 

2

Adjusted operating profit*

6.6

 

6.5

 

2

* see note 2

 

The Laboratory division has two operating businesses: Porvair Sciences (including J G Finneran) and Seal Analytical.

·      Porvair Sciences manufactures laboratory filters and associated consumables.  Differentiation is achieved through proprietary manufacturing capabilities and filtration media.

·      Seal Analytical is a leading supplier of instruments and consumables for environmental laboratories for which demand is driven by water quality regulations.  Differentiation is achieved through consistent new product development.

Revenue in 2019 was up 6% with growth in Porvair Sciences offset by a flat year for Seal Analytical.

Porvair Sciences grew sales by 9% with demand increasing in most segments, supported by new filtration media products.  Investments were made in production equipment and laboratory capability in the UK, where the patented molecular separation technology acquired in 2018 is being developed.  These investments improved productivity and set-up times, and expanded laboratory capabilities, enhancing our ability to offer test facilities for customer-driven new product ideas.  In the US, new clean room manufacturing capacity is being built in the Vineland, NJ plant.

Seal Analytical sales were flat, with demand from China affected by tariff changes, and lower production in the first half during the switch to the newest instrument platform, the AA500.  Orders and shipments for this model increased through the second half, as did shipments of the complementary range of products made by Rohasys, the Dutch company acquired by the Group in 2017.  Orders going into 2020 are healthy.

Metal Melt Quality

 

2019

 

2018

 

Growth

 

£m

 

£m

 

%

Revenue

39.0

 

39.6

 

(2)

Operating profit

2.8

 

2.4

 

20

 

The Metal Melt Quality division manufactures filters for molten metal, specialising in aluminium, ductile iron and nickel-cobalt alloys.  It has a well differentiated product range based on patented products.

Reported revenues were 2% lower, but fell 6% at constant currency, affected in the US by global trade issues in automotive, industrial and agricultural end markets.  Revenue in China grew 5%, as did sales of the more specialist metal filtration products used in nickel cobalt alloys and investment casting. 2019 was therefore a more difficult trading year and it is encouraging to report that operating profits nevertheless increased by 20%, with the management team focused on productivity and manufacturing efficiency.

Progress with our proprietary 3D manufactured filters has been promising, with new customers added in the year, and our advanced ceramics business based in Illinois has had a strong year.

Losses in China reduced by 33% in constant currency, helped by increased local sourcing of raw materials.  As a proportion of the Group's profits these losses are modest but improvement must continue. Chinese aluminium smelters are starting to look more carefully at their supply chains, prompted both by 25% tariffs on imported aluminium filters and the Chinese government's 'China 2025' quality and environmental improvement programme.  This is encouraging, as only Porvair offers a phosphate-free filter to the market, but qualification processes are slower than we would like.

Dividends

The Board has grown the dividend every year for the last ten years and re-affirms its progressive dividend policy.  The Board recommends an increased final dividend of 3.2 pence per share, a cost of £1.5 million (2018: 3.0 pence per share, a cost of £1.4 million).  The full year dividend increased by 7% to 4.9 pence per share, a cost of £2.2 million (2018: 4.6 pence per share, a cost of £2.1 million).  The Company has £19.2 million (2018: £19.5 million) of distributable reserves at 30 November 2019.

Staff and Board

Porvair's success in recent years is entirely due to the hard work, enthusiasm and dedication of its staff, many of whom remain with the Group for years.  The Board offers them its sincere thanks.  During the year we welcomed the staff of Royal Dahlman to the Group.

In June, we were pleased to welcome Jasi Halai to the Board. Jasi is Financial Controller and Operating Officer for 3i plc.  She has joined the Audit, Remuneration and Nomination Committees.  Paul Dean, currently Senior Non-Executive Director and Chair of the Audit Committee will step down from the Board on 3 February following the publication of these results.  Paul has been an outstanding Non-Executive Director of Porvair since 2012 and we are most grateful for his many contributions.   Sally Martin will become the Senior Non-Executive Director and Jasi Hali will chair the Audit Committee.

Current trading and outlook

These results demonstrate the benefits of Porvair's strategy.  Some segments have grown in 2019, others have maintained momentum through operational improvements.  2020 is likely to be similar.  The Group's fundamentals are robust. Over the last ten years, Porvair has delivered revenue growth of 162% (10% CAGR). The Group is positioned to benefit from global trends: tighter environmental regulations; growth in analytical science; the expansion of air travel; the replacement of plastic by aluminium; and the drive for manufacturing process efficiency.  These trends offer opportunities for which the Group develops differentiated products.  Trading in 2020 has started well, order books are healthy and investment plans are on track. Recent acquisitions are trading as expected.  The Group is looking forward with confidence.

 

Ben Stocks

Group Chief Executive

31 January 2020
 

Financial review

 

Group results

 

2019

 

2018

 

Growth

 

£m

 

£m

 

%

Revenue

144.9

 

128.8

 

13

Operating profit

14.8

 

12.9

 

15

Profit before tax

14.0

 

12.0

 

16

Profit after tax

10.8

 

10.0

 

7

 

Reported revenue growth was 13%, 10% at constant currency. 7% was generated from organic growth and 3% from acquisitions.  Operating profit was £14.8 million (2018: £12.9 million) and profit before tax was £14.0 million (2018: £12.0 million).  Profit after tax increased by 7% to £10.8 million.

Alternative performance measures - profit

 

2019

 

2018

 

Growth

 

£m

 

£m

 

%

Adjusted operating profit

15.6

 

14.3

 

9

Adjusted profit before tax

14.8

 

13.5

 

9

Adjusted profit after tax

11.5

 

10.4

 

11

 

The Group presents constant currency revenue measures and other alternative performance measures to enable a better understanding of its trading performance (see note 1).  Adjusted operating profit and adjusted profit before tax exclude:

·      the impact of acquiring businesses:

the amortisation of acquired intangible assets of £0.6 million (2018: £0.6 million); and

acquisition expenses and other adjustments charged to the income statement related to acquiring businesses of £0.3 million (2018: £0.1 million).

·      other items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading.  In the prior year, the adjusted operating profit and adjusted profit before tax included an exceptional charge of £0.8 million (2019: £nil).  Following legal guidance, the benefits provided by the Group's defined benefit pension plan were enhanced in the prior year to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.

Adjusted profit after tax excludes the adjustments to profit before tax described above and, in the case of the prior year, excludes the tax effect of the adjusted items and an exceptional one off tax credit of £0.8 million (2019: £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

Revenue growth was 13% (10% at constant currency) and adjusted operating profit growth was 9%. Adjusted operating margin was 10.8% (2018: 11.1%).  Adjusted operating margins in the Aerospace & Industrial division were 13.2% (2018: 15.9%). Additional costs were incurred to meet the strong aerospace order book; operating profits fell in the two US plants associated with global microelectronics and US general industrial; and further amounts were provided for gasification warranty risks.  Adjusted operating margins in the Laboratory division were 15.1% (2018: 15.8%), held back marginally by currency translation effects. Metal Melt Quality operating margins increased to 7.3% (2018: 6.0%). Improved operational efficiencies in the US increased margins to 11.3% (2018: 11.0%) and losses in China fell by 33%.  Adjusted Central costs reduced to £2.4 million (2018: £2.6 million). 

 

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:

 

2019

 

2018

Average rate for translating the results:

 

 

 

US $ denominated operations

$1.27:£

 

$1.34:£

Euro denominated operations

€1.14:£

 

€1.13:£

 

 

 

 

Closing rate for translating the balance sheet:

 

 

 

US $ denominated operations

$1.29:£

 

$1.28:£

Euro denominated operations

€1.17:£

 

€1.13:£

 

A weaker Sterling average rate against the US dollar over the year increased reported revenues on translation by 3%. 

In the year, the Group sold $27.0 million (2018: $17.8 million) at an average rate of $1.28:£1 (2018: $1.33:£1) and €3.5 million (2018: €3.9 million) at an average rate of €1.14:£1 (2018: €1.13:£1). 

At 30 November 2019, the Group had $9.9 million (2018: $nil) of outstanding forward foreign exchange contracts; hedge accounting has been applied to $8.6 million of these contracts. The Group had $7.8 million (2018: $6.2 million) of net current assets on the UK operations' balance sheet. 

Impact of the adoption of IFRS 15

The Group has adopted IFRS 15 for the first time in the year ended 30 November 2019.  The majority of the Group's transactions are unaffected by IFRS 15, however, when the standard is applied to specific customer contracts previously recognised under construction contract accounting (IAS 11), this leads to a difference in the timing of recognising revenue. The impact of the timing difference varies from contract to contract.  In addition, certain companies provide installation services for goods shipped to customers as part of their sale of goods contracts.  Having reviewed these installation contracts, there is a change in accounting required under IFRS 15 to defer the related revenue.

Comparatives for the year ended 30 November 2018 have not been restated.  Instead, an adjustment to reduce retained earnings by £57,000 as at 1 December 2018 has been recognised in the opening retained earnings. On initial adoption at 1 December 2018 the Group recognised £8.2 million of provisions and eliminated deferred revenue of £7.7 million.

Had IFRS 15 not been adopted by the Group in the current year, revenue would have been £4.0 million higher and operating profit would have been £0.4 million lower.

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 (2018: £0.8 million).  The defined benefit pension scheme interest cost was £0.4 million (2018: £0.4 million), bank interest and borrowing facilities non-utilisation fees were £0.3 million (2018: £0.3 million) and there was a charge of £0.1 million (2018: £0.1 million) for unwinding discounted provisions. 

Interest cover was 19 times (2018: 17 times).  Interest cover on bank finance costs was 45 times (2018: 44 times).

Tax

The Group tax charge was £3.2 million (2018: £2.0 million, after removing the adjusting items described in note 1 to the accounts, the Group's underlying tax charge was £3.1 million).  This is an effective rate of 23% (2018: 24%), which is higher than the UK standard corporate tax rate of 19.0% (2018: 19.0%).  The tax rate in the UK was lower than the standard rate because of tax relief on the exercise of share options.  US tax was at an effective rate of 23% (2018: 23%).  The Group tax rate was pushed up by profits made in Germany, which attract a 30% tax rate (2018: 32%). The Group has not taken a tax credit relating to the losses arising in China because it cannot be certain that the asset would be recovered, this has increased the tax rate by 2.0% (2018: 3.2%). 

The tax charge comprises current tax of £2.6 million (2018: £2.7 million) and a deferred tax charge of £0.6 million (2018: credit of £0.7 million). 

The Group has current tax provisions of £0.6 million (2018: £1.5 million). The current tax provision includes £1.2 million (2018: £1.0 million) for uncertainties relating to the interpretation of tax legislation in the Group's operating territories.

The Group carries a deferred tax asset of £2.4 million (2018: £2.3 million) and a deferred tax liability of £2.6 million (2018: £2.0 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 and acquired intangibles in the Netherlands. 

Total equity and distributable reserves

Total equity at 30 November 2019 was £95.3 million (2018: £89.5 million, £89.4 million after adoption of IFRS 15), an increase of 7% over the prior year. 

Increases in total equity arose from: profit after tax of £10.7 million (2018: £10.0 million); employee share option schemes net of tax of £0.7 million (2018: £0.4 million); and £0.6 million (2018: £0.1 million) arising on the proceeds of the issue of shares on share option exercises.

Reductions in total equity arose from: dividends paid of £2.1 million (2018: £2.0 million); purchases by the Employee Benefit Trust of the Company's own shares charged directly to equity of £0.6 million (2018: £0.4 million); a pension scheme actuarial loss (net of tax) of £2.3 million (2018: gain of £2.9 million); and exchange losses (net of tax) on translation of £1.1 million (2018: gain of £3.5 million). 

The Company had £19.2 million (2018: £19.5 million) of distributable reserves at 30 November 2019.  The Company's distributable reserves increased in the year as a result of dividends received from other Group companies, offset by an actuarial loss, head office costs and dividends paid to shareholders. 

Return on capital employed

The Group's after tax return on capital employed of 14% (2018: 15%) gives a measure of the operating return the Group makes on all its invested capital.  It fell slightly in the year as a result of acquiring Royal Dahlman in the final quarter of the year.  The after tax return on operating capital employed of 36% (2018: 43%) gives a measure of the returns that the Group makes on its fixed assets and working capital.  It fell in 2019, as a result of increases in inventories and trade receivables from strong trading in the final quarter and a good order book for the first quarter of 2020.  The Group's divisions have post-tax weighted average costs of capital of between 7% and 8%.

 

 

Cash flow

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

 

2019

 

2018

 

£m

 

£m

Operating cash flow before working capital

18.1

 

17.0

Working capital movement

(1.3)

 

(1.7)

Cash generated from operating activities

16.8

 

15.3

Interest

(0.3)

 

(0.3)

Tax

(3.3)

 

(2.4)

Capital expenditure net of disposals

(4.3)

 

(4.5)

 

8.9

 

8.1

Acquisitions

(9.8)

 

(9.0)

Dividends

(2.1)

 

(2.0)

Share issue proceeds

0.5

 

0.1

Purchase of EBT shares

(0.6)

 

(0.4)

Net cash decrease in the year

(3.1)

 

(3.2)

Exchange gains

0.5

 

-

Net cash at 1 December

6.6

 

9.8

Net cash at 30 November

4.0

 

6.6

 

Generating free cash flow is key to the Group's business model and operating cash flow of £16.8 million (2018: £15.3 million) represented an 89% (2018: 88%) conversion rate of operating profit before depreciation and amortisation.  Net working capital increased by £1.3 million (2018: £1.7 million), mainly arising in the Aerospace & Industrial division.  A strong final quarter and purchases made for manufacture and delivery of the strong order book meant that receivables increased by £0.7 million (2018: £1.6 million) and inventories increased by £2.3 million (2018: £2.5 million).  Payables and provisions increased by £1.7 million (2018: £2.4 million).

Provisions, contingent liabilities and performance bonds

At 30 November 2019, the Group had the following advanced payment bonds (relating to monies received in advance on contracts) and performance bonds issued to customers in US dollars and Euros:

 

 

 

$'000

 

€'000

Performance bonds

 

 

8,534

 

638

At 30 November 2019

 

 

8,534

 

638

 

 

 

 

$'000

 

€'000

Advanced payment bonds

 

 

2,360

 

-

Performance bonds

 

 

7,476

 

-

At 30 November 2018

 

 

9,836

 

-

 

$8,478,000 (2018: $7,476,000) of the performance bonds relate to the contracts for filtration systems provided for gasification projects.  These projects are being commissioned, a process which is taking several years.  The Group has provided its best estimate of the amount of any potential loss arising from rectification and claims arising on these contracts within the £9.5 million warranty provisions disclosed in note 9.  The maximum potential unprovided exposure under these contracts is limited to £11.5 million.  In December 2019, a $930,000 performance bond was called by a customer, paid and cancelled.  The uncalled performance bonds are expected to be called or released no later than March 2023.

Capital expenditure

Capital expenditure was £4.3 million (2018: £4.5 million) in the year.  Expenditure was spread across each division: £0.6 million was spent on buildings and infrastructure including adding a further 20,000 square feet of space in the Laboratory division in the US; £3.9 million was spent on plant and machinery; £0.4 million specifically related to health and safety upgrades; £3.5 million related to capacity and productivity improvements; and £0.4 million was spent on intangible assets including software upgrades and intellectual property costs.  

Acquisitions

£9.8 million was spent on acquisitions in the year. £6.8 million was spent to acquire Dahlman Industrial Group B.V. ("Royal Dahlman") to increase the Aerospace & Industrial division's expertise in petroleum filtration and engineering.  The Company, based in the Netherlands, designs and builds filtration packages for oil and gas applications and distributes filters for industrial applications in the Benelux region.  £3.0 million was paid to settle earnout payments in relation to Rohasys B.V. and J G Finneran Associates, Inc.  There is up to £0.9 million, based on an earnout, to be paid over the next two years in relation to the acquisition of Rohasys.

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 other employees.  A summary of the costs of pension provision is given below:

 

2019

 

2018

 

£m

 

£m

Charged to operating costs:

 

 

 

Defined contribution schemes

2.1

 

1.7

Defined benefit scheme

0.6

 

1.5

Pension protection levy

0.1

 

0.1

Total pensions charged to operating costs

2.8

 

3.3

Charged to interest payable:

 

 

 

Defined benefit scheme

0.4

 

0.4

Total pensions charged to interest payable

0.4

 

0.4

Total pension costs

3.2

 

3.7

 

The Group's cash contributions paid to The Plan were £1.6 million (2018: £1.6 million). 

The Group's net retirement benefit obligation was £14.5 million (2018: £12.4 million).  The Plan's liabilities increased to £45.2 million (2018: £39.2 million).  The Plan's assets increased to £30.8 million (2018: £27.0 million). There were a further £0.1 million (2018: £0.2 million) of non-Plan liabilities.

The actuarial loss in the year of £2.7 million (2018: gain of £3.6 million) was recognised in the statement of comprehensive income.  The Plan's assets achieved an actuarial gain of £3.2 million (2018: loss of £1.4 million).  The experience loss of £0.9 million (2018: £nil) relates to adjustments arising from the triennial valuation completed in the year.  The actuarial loss on the liabilities of £5.0 million (2018: gain of £5.0 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 reduced from 3.0% to 1.95%, as a result of lower AA bond yields, which accounted for £5.9 million in increased liabilities.

·      The mortality assumptions have been updated to incorporate the CMI 2018 Core Projection Model.  This reduced the life expectancy of 65 year old women by 0.5 years and men by 0.4 years.  The liabilities reduced by £0.9 million as a result.

The triennial actuarial valuation of The Plan determines the cash contributions that the Group makes to The Plan.  A full actuarial valuation was completed in the year based on The Plan's position at 31 March 2018.  Based on the valuation, the Group agreed to set the employer's contributions at 20.9% (previously 18.9%) of salary.  The Group committed to making a £0.2 million annual contribution towards the running costs of The Plan from April 2019, 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 £1.6 million (previously £1.0 million) per annum from 1 December 2019 until 1 December 2028. 

 

 

Borrowings and bank finance

At the year end, the Group had cash balances of £12.9 million (2018: £11.5 million) and borrowings of £8.9 million (2018: £4.9 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 2019, the Group had net cash of £4.0 million (2018: £6.6 million), €13.3 million (£11.4 million) of unused facilities (2018: €17.3 million of unused facilities (£15.3 million)), and an unutilised overdraft facility of £2.5 million (2018: £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 IFRS 16 in year ending 30 November 2020

The Group will adopt IFRS 16 in its accounts for the year ending 30 November 2020.  The most significant impact identified will be that the Group's leases for property, plant and equipment will be brought on to the balance sheet as 'right-of-use assets'.  This will result in around £14.3 million of additional fixed assets being recognised at 1 December 2019; around £14.8 million of discounted future lease commitments recognised as liabilities; and adjustments to eliminate rent prepayments, lease incentives and onerous lease commitments.  There is not expected to be any change to opening reserves. 

The profile of expenses related to leasing arrangements will change.  Straight line operating lease expenses will be replaced by a straight-line depreciation of the right-of-use assets and interest charges on lease liabilities, which follow a reducing-balance profile.  Consequently, there will be earlier recognition of cost under IFRS 16 compared to the current treatment under IAS 17.  If no additional leases are signed in the year ending 30 November 2020, then the overall impact on the Group's income statement for the year will be to reduce profit before tax by no more than £0.3 million. Over the lifetime of each lease there will be no change in the overall income statement impact or the cash paid out.

International Trade 

50% of Group revenue is manufactured in the US and higher US tariffs have had an effect on trading.  A few customers in 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.  The UK leaves the EU on 31 January 2020 with transitional arrangements coming into force until at least 31 December 2020.  The Board does not expect the impact in the coming year to be significant.  Until specific future EU trade arrangements become clear, a definitive statement of risks associated with the period after 31 December 2020 cannot be made.  The Group has reviewed tariff categories that would apply to its products under WTO terms and has confirmed that its EU nationals staff have a right to remain in the UK.  The Board notes that revenues between the UK and Continental Europe were less than 10% of total revenues in 2019.

 

Chris Tyler

Group Finance Director

31 January 2020

 

 

 

Consolidated income statement

For the year ended 30 November

 

 

Note

2019

 

2018

Continuing operations

 

 

£'000

 

£'000

Revenue

 

1,2

144,932

 

128,823

Cost of sales

 

 

(97,505)

 

(84,444)

Gross profit

 

 

47,427

 

44,379

Distribution costs

 

 

(2,259)

 

(2,172)

Administrative expenses

 

 

(30,381)

 

(29,339)

Adjusted operating profit

 

1,2

15,592

 

14,343

Adjustments

 

 

 

 

 

Equalisation of guaranteed minimum pension

 

1

-

 

(773)

Amortisation of acquired intangibles

 

1

(588)

 

(564)

Other acquisition related adjustments

 

1

(217)

 

(138)

Operating profit

 

1,2

14,787

 

12,868

Finance income

 

 

7

 

6

Finance costs

 

 

(809)

 

(836)

Profit before income tax

 

1,2

13,985

 

12,038

Adjusted income tax expense

 

 

(3,220)

 

(3,113)

Adjustments

 

 

 

 

 

Tax effect of adjustments to operating profit

 

1

-

 

325

Exceptional reduction of US deferred tax liability

 

1

-

 

778

Income tax expense

 

 

(3,220)

 

(2,010)

Profit for the year

 

 

10,765

 

10,028

 

 

 

 

 

 

Profit attributable to:

 

 

 

 

 

Owners of the parent

 

 

10,768

 

10,045

Non-controlling interests

 

 

(3)

 

(17)

Profit for the year

 

 

10,765

 

10,028

 

 

 

 

 

 

Earnings per share (basic)

 

3

23.6p

 

22.1p

Adjusted earnings per share (basic)

 

3

25.3p

 

22.9p

 

 

 

 

 

 

Earnings per share (diluted)

 

3

23.5p

 

22.0p

Adjusted earnings per share (diluted)

 

3

25.3p

 

22.8p

 

 

Consolidated statement of comprehensive income

For the year ended 30 November

 

 

2019

£'000

 

2018

£'000

Profit for the year

 

10,765

 

10,028

Other comprehensive (expense)/income:

 

 

 

 

Items that will not be reclassified to profit and loss

 

 

 

 

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

 

(2,278)

 

2,948

Items that may subsequently be classified to profit and loss

 

 

 

 

Exchange differences on translation of foreign subsidiaries

 

(1,212)

 

3,606

Tax relating to components of other comprehensive income

 

149

 

(149)

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

 

35

 

-

 

 

(1,028)

 

3,457

Net other comprehensive (expense)/income

 

(3,306)

 

6,405

Total comprehensive income for the year

 

7,459

 

16,433

 

 

 

 

 

Comprehensive income attributable to:

 

 

 

 

Owners of the parent

 

7,462

 

16,450

Non-controlling interests

 

(3)

 

(17)

Total comprehensive income for the year

 

7,459

 

16,433

 

 

Consolidated balance sheet

As at 30 November

 

Note

 

2019

£'000

 

2018

£'000

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

5

 

22,779

 

21,827

Goodwill and other intangible assets

6

 

71,512

 

67,001

Deferred tax asset

 

 

2,360

 

2,304

Other receivables

 

 

1,048

 

-

 

 

 

97,699

 

91,132

Current assets

 

 

 

 

 

Inventories

 

 

23,197

 

19,856

Trade and other receivables

 

 

24,153

 

22,336

Derivative financial instruments

 

 

48

 

-

Cash and cash equivalents

 

 

12,889

 

11,492

 

 

 

60,287

 

53,684

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

7

 

(25,989)

 

(32,826)

Current tax liabilities

 

 

(564)

 

(1,530)

Provisions for other liabilities and charges

9

 

(9,526)

 

(506)

 

 

 

(36,079)

 

(34,862)

 

 

 

 

 

 

Net current assets

 

 

24,208

 

18,822

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Borrowings

8

 

(8,875)

 

(4,867)

Deferred tax liability

 

 

(2,588)

 

(2,032)

Retirement benefit obligations

 

 

(14,450)

 

(12,356)

Other payables

 

 

(417)

 

(1,008)

Provisions for other liabilities and charges

9

 

(242)

 

(219)

 

 

 

(26,572)

 

(20,482)

Net assets

 

 

95,335

 

89,472

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

Share capital

10

 

921

 

917

Share premium account

10

 

36,504

 

35,958

Cumulative translation reserve

 

 

9,358

 

10,570

Retained earnings

 

 

48,552

 

42,024

Equity attributable to owners of the parent

 

 

95,335

 

89,469

Non-controlling interests

 

 

-

 

3

Total equity

 

 

95,335

 

89,472

 

 

Consolidated cash flow statement

For the year ended 30 November

 

Note

 

2019

£'000

 

2018

£'000

Cash flows from operating activities

 

 

 

 

 

Cash generated from operations

14

 

16,758

 

15,335

Interest paid

 

 

(343)

 

(345)

Tax paid

 

 

(3,256)

 

(2,419)

Net cash generated from operating activities

 

 

13,159

 

12,571

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Interest received

 

 

7

 

6

Acquisition of subsidiaries (net of cash acquired)

11, 12

 

(9,761)

 

(9,007)

Purchase of property, plant and equipment

5

 

(3,943)

 

(3,796)

Purchase of intangible assets

6

 

(363)

 

(656)

Net cash used in investing activities

 

 

(14,060)

 

(13,453)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from issue of ordinary share capital

10

 

550

 

131

Purchase of Employee Benefit Trust shares

 

 

(623)

 

(416)

Increase in borrowings

 

 

4,648

 

1,913

Dividends paid to shareholders

4

 

(2,146)

 

(1,957)

Net cash from/(used in) financing activities

 

 

2,429

 

(329)

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

1,528

 

(1,211)

Exchange (losses)/gains on cash and cash equivalents

 

 

(131)

 

206

 

 

 

1,397

 

(1,005)

Cash and cash equivalents at 1 December

 

 

11,492

 

12,497

Cash and cash equivalents at 30 November

 

 

12,889

 

11,492

 

Reconciliation of net cash flow to movement in net cash

 

 

2019

£'000

 

2018

£'000

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

1,528

 

(1,211)

Effects of exchange rate changes

 

509

 

(37)

Increase in borrowings

 

(4,648)

 

(1,913)

Net cash at 1 December

 

6,625

 

9,786

Net cash at 30 November

 

4,014

 

6,625

 

 

 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 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 (note 4)

-

-

-

(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

IFRS 15 adjustment

-

-

-

(57)

(57)

-

(57)

Balance at 1 December 2018

917

35,958

10,570

41,967

89,412

3

89,415

Profit for the year

-

-

-

10,768

10,768

-

10,768

Other comprehensive expense

-

-

(1,212)

(2,094)

(3,306)

-

(3,306)

Total comprehensive (expense)/income for the year

 

-

 

-

 

(1,212)

 

8,674

 

7,462

 

-

 

7,462

Transactions with owners:

 

 

 

 

 

 

 

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

 

-

 

-

 

-

 

(623)

 

(623)

 

-

 

(623)

Employee share option schemes:

 

 

 

 

 

 

 

- value of employee services net of tax

 

-

 

-

 

-

 

680

 

680

 

-

 

680

Proceeds from shares issued

4

546

-

-

550

-

550

Dividends paid (note 4)

-

-

-

(2,146)

(2,146)

-

(2,146)

Total transactions with owners recognised directly in equity

 

4

 

546

 

-

 

(2,089)

 

(1,539)

 

-

 

(1,539)

Adjustment arising from change in non-controlling interest

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(3)

 

 

(3)

Balance at 30 November 2019

921

36,504

9,358

48,552

95,335

-

95,335

 

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 between divisions and compared with prior periods. 

 

Alternative revenue measures

 

 

2019

 

2018

 

Growth

Aerospace & Industrial

 

£'000

 

£'000

 

%

Underlying revenue

 

57,536

 

47,916

 

20

Acquisitions

 

4,952

 

1,671

 

 

Revenue at constant currency

 

62,488

 

49,587

 

26

Exchange

 

2,155

 

949

 

 

Revenue as reported

 

64,643

 

50,536

 

28

 

 

 

 

 

 

 

Laboratory

 

 

 

 

 

 

Revenue at constant currency

 

38,853

 

37,261

 

4

Exchange

 

2,427

 

1,398

 

 

Revenue as reported

 

41,280

 

38,659

 

7

 

 

 

 

 

 

 

Metal Melt Quality

 

 

 

 

 

 

Revenue at constant currency

 

35,377

 

37,678

 

(6)

Exchange

 

3,632

 

1,950

 

 

Revenue as reported

 

39,009

 

39,628

 

(2)

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

Underlying revenue

 

131,766

 

122,855

 

7

Acquisitions

 

4,952

 

1,671

 

 

Revenue at constant currency

 

136,718

 

124,526

 

10

Exchange

 

8,214

 

4,297

 

 

Revenue as reported

 

144,932

 

128,823

 

13

 

Revenue at constant currency is derived from translating overseas subsidiaries results at budgeted fixed exchange rates.  In 2019 and 2018 the rates used were $1.4:£ and €1.2:£, compared with reported rates of $1.27:£1 (2018: $1.34:£1) and €1.14:£1 (2018: €1.13:£1).

 

Underlying revenue is revenue at constant currency adjusted for the impact of acquisitions made in the current and prior years.

 

 

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:

 

 

 

 

2019

 

 

 

2018

 

 

 

Adjusted

£'000

Adjustments

£'000

Reported

£'000

 

Adjusted

£'000

Adjustments

£'000

Reported

£'000

Operating profit

15,592

(805)

14,787

 

14,343

(1,475)

12,868

Finance income

7

-

7

 

6

-

6

Finance costs

(809)

-

(809)

 

(836)

-

(836)

Profit before income tax

14,790

(805)

13,985

 

13,513

(1,475)

12,038

Income tax expense

(3,220)

-

(3,220)

 

(3,113)

1,103

(2,010)

Profit after tax

11,570

(805)

10,765

 

10,400

(372)

10,028

                           

 

 

2019

 

 

£'000

 

£'000

Equalisation of guaranteed minimum pension

-

 

(773)

Amortisation of intangible assets acquired through acquisitions

(588)

 

(564)

Release of contingent consideration

36

 

-

Acquisition expenses

(253)

 

(138)

Adjustments affecting operating profit

(805)

 

(1,475)

 

 

 

 

Tax effect of adjustments

-

 

325

Tax - exceptional item

-

 

778

Adjustments affecting tax

-

 

1,103

Total adjusting items

(805)

 

(372)

 

Adjusted operating profit and adjusted profit before tax exclude:

the impact of acquiring businesses:

the amortisation of acquired intangible assets of £0.6 million (2018: £0.6 million); and

acquisition expenses and other adjustments charged to the income statement related to acquiring businesses of £0.3 million (2018: £0.1 million).

·      other items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading.  In the prior year, the adjusted operating profit and adjusted profit before tax included an exceptional charge of £0.8 million (2019: £nil).  Following legal guidance, the benefits provided by the Group's defined benefit pension plan were enhanced in the prior year 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 £nil (2018: £778,000) reflecting, in the prior year, 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.

 

Return on capital employed

The Group uses two return measures to assess the return it makes on its investments:  

·      return on capital employed of 14% (2018: 15%) is the tax adjusted operating profit as a percentage of the average capital employed.  Capital employed is the average of the opening and closing Group net assets less the average of the opening and closing net cash position; and

·      return on operating capital employed of 36% (2018: 43%) is calculated on the same basis except that the capital employed is adjusted to remove the average of the opening and closing goodwill and the opening and closing pension deficit to give a measure of the operating capital.

 

 

2.             Segment information

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

 

2019

Aerospace & Industrial

 

Laboratory

 

Metal Melt Quality

 

Central

 

Group

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Total segment revenue

64,696

 

43,654

 

39,011

 

-

 

147,361

Inter-segment revenue

(53)

 

(2,374)

 

(2)

 

-

 

(2,429)

Revenue

64,643

 

41,280

 

39,009

 

-

 

144,932

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

 

8,527

 

 

6,597

 

 

2,845

 

 

(2,377)

 

 

15,592

Amortisation of acquired intangibles

 

(337)

 

 

(251)

 

 

-

 

 

-

 

 

(588)

Other acquisition related adjustments

 

-

 

 

36

 

 

-

 

 

(253)

 

 

(217)

Operating profit/(loss)

8,190

 

6,382

 

2,845

 

(2,630)

 

14,787

Interest payable and similar charges

 

-

 

 

-

 

 

-

 

 

(802)

 

 

(802)

Profit/(loss) before income tax

8,190

 

6,382

 

2,845

 

(3,432)

 

13,985

Income tax expense

-

 

-

 

-

 

(3,220)

 

(3,220)

 

Profit/(loss) for the year

 

8,190

 

 

6,382

 

 

2,845

 

 

(6,652)

 

 

10,765

 

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

 

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 2019

Aerospace & Industrial

 

Laboratory

 

Metal Melt Quality

 

Central

 

Group

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Segmental assets

73,000

 

38,289

 

31,310

 

2,498

 

145,097

Cash and cash equivalents

 

-

 

 

-

 

 

-

 

 

12,889

 

 

12,889

Total assets

73,000

 

38,289

 

31,310

 

15,387

 

157,986

 

 

 

 

 

 

 

 

 

 

Segmental liabilities

(23,721)

 

(9,653)

 

(4,243)

 

(1,709)

 

(39,326)

Retirement benefit obligations

 

-

 

 

-

 

 

-

 

 

(14,450)

 

 

(14,450)

Bank overdraft and loans

 

-

 

 

-

 

 

-

 

 

(8,875)

 

 

(8,875)

Total liabilities

(23,721)

 

(9,653)

 

(4,243)

 

(25,034)

 

(62,651)

 

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)

 

Geographical analysis

 

2019

 

2018

 

By destination

£'000

 

By origin

£'000

 

By destination

£'000

 

By origin

£'000

Revenue

 

 

 

 

 

 

 

United Kingdom

16,394

 

50,058

 

16,494

 

38,984

Continental Europe

21,844

 

13,543

 

19,322

 

10,949

United States of America

67,214

 

75,336

 

56,159

 

73,979

Other NAFTA

2,310

 

-

 

8,304

 

-

South America

2,038

 

-

 

2,206

 

-

Asia

33,847

 

5,995

 

24,914

 

4,911

Africa

1,285

 

-

 

1,424

 

-

 

144,932

 

144,932

 

128,823

 

128,823

 

 

 

3.             Earnings per share

 

2019

 

2018

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

 

10,768

 

 

 

 

10,045

 

 

Shares in issue

 

45,871,417

 

 

 

45,705,419

 

Shares owned by the Employee Benefit Trust

 

 

(183,308)

 

 

 

 

(156,552)

 

Basic earnings

10,768

45,688,109

23.6

 

10,045

45,548,867

22.1

Effect of dilutive securities - share options

 

-

 

47,240

 

(0.1)

 

 

-

 

102,380

 

(0.1)

Diluted earnings

10,768

45,735,349

23.5

 

10,045

45,651,247

22.0

 

 

2019

 

2018

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

 

10,768

 

 

 

 

10,045

 

 

Adjusting items (note 1)

805

 

 

 

372

 

 

Adjusted earnings attributable to ordinary shareholders

 

 

11,573

 

 

 

 

 

10,417

 

 

Adjusted basic earnings

11,573

45,688,109

25.3

 

10,417

45,548,867

22.9

Adjusted diluted earnings

11,573

45,735,349

25.3

 

10,417

45,651,247

22.8

 

4.             Dividends per share

 

2019

 

2018

 

Per share

£'000

 

Per share

£'000

Final dividend paid

3.0p

1,368

 

2.7p

1,229

Interim dividend paid

1.7p

778

 

1.6p

728

 

4.7p

2,146

 

4.3p

1,957

 

The Directors recommend the payment of a final dividend of 3.2 pence per share (2018: 3.0 pence per share) on 5 June 2020 to shareholders on the register on 1 May 2020; the ex-dividend date is 30 April 2020.  This makes a total dividend for the year of 4.9 pence per share (2018: 4.6 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 2018

 

11,206

 

2,178

 

38,807

 

52,191

Reclassification

 

378

 

(865)

 

487

 

-

Additions

 

500

 

83

 

3,360

 

3,943

Acquisitions

 

50

 

-

 

237

 

287

Disposals

 

(77)

 

-

 

(674)

 

(751)

Exchange differences

 

(120)

 

(8)

 

(408)

 

(536)

At 30 November 2019

 

11,937

 

1,388

 

41,809

 

55,134

 

Depreciation

 

 

 

 

 

 

 

 

At 1 December 2018

 

(3,405)

 

-

 

(26,959)

 

(30,364)

Charge for the year

 

(348)

 

-

 

(2,582)

 

(2,930)

Disposals

 

20

 

-

 

609

 

629

Exchange differences

 

39

 

-

 

271

 

310

At 30 November 2019

 

(3,694)

 

-

 

(28,661)

 

(32,355)

 

Net book value

 

 

 

 

 

 

 

 

At 30 November 2019

 

8,243

 

1,388

 

13,148

 

22,779

At 30 November 2018

 

7,801

 

2,178

 

11,848

 

21,827

 

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 2018

 

62,761

 

 

208

 

 

739

 

 

3,293

 

 

67,001

Additions

-

 

16

 

163

 

184

 

363

Acquisitions

3,888

 

-

 

39

 

2,194

 

6,121

Disposals

-

 

-

 

(4)

 

-

 

(4)

Amortisation on disposed assets

 

-

 

 

-

 

 

4

 

 

-

 

 

4

Amortisation charges

-

 

(69)

 

(110)

 

(634)

 

(813)

Exchange differences

(981)

 

(1)

 

(26)

 

(152)

 

(1,160)

Net book amount at 30 November 2019

 

65,668

 

 

154

 

 

805

 

 

4,885

 

 

71,512

 

At 30 November 2019

 

 

 

Goodwill

 

 

Development expenditure capitalised

 

 

 

Software capitalised

 

Trademarks, knowhow and other intangibles

 

 

 

 

Total

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Cost

84,326

 

903

 

2,047

 

7,516

 

94,792

Accumulated amortisation and impairment

 

 

(18,658)

 

 

 

(749)

 

 

 

(1,242)

 

 

 

(2,631)

 

 

 

(23,280)

Net book amount

65,668

 

154

 

805

 

4,885

 

71,512

 

 

 

 

7.             Trade and other payables

 

Amounts falling due within one year:

2019

£'000

 

2018

£'000

Trade payables

14,728

 

12,046

Taxation and social security

1,016

 

628

Other payables

897

 

2,884

Accruals and deferred income

9,348

 

17,268

At 30 November

25,989

 

32,826

 

8.             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 2019, the Group had €13.3 million of unused facilities (2018: €17.3 million of unused facilities) and an unutilised overdraft facility of £2.5 million (2018: £2.5 million). 

 

9.             Provisions

 

 

 

 

Dilapidations

 

Warranty

 

Total

 

 

 

 

£'000

 

£'000

 

£'000

At 30 November 2018

 

 

 

219

 

506

 

725

Recognised on adoption of IFRS 15

 

 

 

-

 

8,187

 

8,187

At 1 December 2018

 

 

 

219

 

8,693

 

8,912

Acquired

 

 

 

-

 

136

 

136

Charged to the consolidated income statement:

 

 

 

 

 

 

 

 

-       Unwinding of discount

 

 

 

23

 

-

 

23

-       Warranty

 

 

 

-

 

801

 

801

Utilised:

 

 

 

 

 

 

 

 

-       Warranty

 

 

 

-

 

(96)

 

(96)

Exchange reserve

 

 

 

-

 

(8)

 

(8)

At 30 November 2019

 

 

 

242

 

9,526

 

9,768

 

 

 

 

 

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

 

 

Provisions arise from probable claims arising from major contracts, discounted dilapidations provisions for leased property, which is expected to be required in 2023, and sale warranties which expire by 2020.  The amount charged in the year of £801,000 arose on additional sales made in the year.  The amount released in the prior year of £711,000 arose on the completion of contracts. Also see note 13.

 

 

 

10.          Share capital and premium

 

 

Number of shares

 

Ordinary shares

 

 

Share premium account

 

Total

 

 

 

Thousands

 

£'000

 

£'000

 

£'000

At 1 December 2018

 

45,843

 

917

 

35,958

 

36,875

Issue of shares on exercise of share options

 

 

198

 

 

4

 

 

546

 

 

550

At 30 November 2019

 

46,041

 

921

 

36,504

 

37,425

 

In October and November 2019, 197,600 ordinary shares of 2 pence each were issued on the exercise of Save As You Earn share options for cash consideration of £550,000.

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.  The EBT has waived its rights to dividends.  During the year, the Group purchased 114,000 ordinary shares of 2 pence each (2018: 84,000) for a total consideration of £623,000 (2018: £416,000).  During the year the EBT issued 164,600 ordinary shares of 2 pence each (2018: nil) to satisfy the exercise of Long Term Share Plan share options. 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 £1,592,000 (2018: £968,000).  As at 30 November 2019 the EBT held a total of 145,400 ordinary shares of 2 pence each (2018: 196,000) at a cost of £773,000 (2018: £968,000) and a market value of £878,000 (2018: £833,000).

11.          Acquisitions

On 4 September 2019 the Group, through its subsidiary Porvair Holdings B.V., purchased 100% of the share capital of Dahlman Industrial Group B.V. ("Royal Dahlman") to increase the Aerospace & Industrial division's expertise in petroleum filtration engineering.  The Company is based in the Netherlands.  The trade is the design and build of filtration packages for oil and gas applications and the distribution of filters for industrial applications in the Benelux region.  The total consideration was €7,750,000 (£7,010,000), which was paid in cash on the acquisition date, together with €151,000 (£137,000) to settle an outstanding loan.  There are no further payments due on this acquisition.  In the period since acquisition, the business has contributed €2,942,000 (£2,587,000) sales and €6,000 (£5,000) of underlying operating profit to the Group results.  The direct costs of acquisition of £337,000 were charged to the income statement in the current and prior year.  If Royal Dahlman had been consolidated from 1 December 2018, the consolidated statement of income would show pro-forma revenue of £157.7 million and operating profit of £15.2 million.

 

 

 

 

 

 

Total

 

 

 

 

 

 

£'000

Purchase consideration:

 

 

 

 

 

 

Cash paid

 

 

 

 

 

7,010

Loan repaid

 

 

 

 

 

137

Total purchase consideration

 

 

 

 

 

7,147

Fair value of net assets acquired

 

 

 

 

 

(3,259)

Goodwill

 

 

 

 

 

3,888

 

 

 

11.          Acquisitions continued

 

Recognised amounts of identifiable assets acquired and liabilities assumed

 

 

Fair value

 

 

 

 

 

 

£'000

Property, plant and equipment

 

 

 

 

 

287

Software

 

 

 

 

 

39

Trade name

 

 

 

 

 

451

Customer list

 

 

 

 

 

1,743

Inventory

 

 

 

 

 

1,322

Trade receivables

 

 

 

 

 

2,343

Trade payables

 

 

 

 

 

(1,610)

Accruals and other creditors

 

 

 

 

 

(1,518)

Deferred tax liability

 

 

 

 

 

(332)

Cash acquired

 

 

 

 

 

341

Other working capital (net)

 

 

 

 

 

193

Net assets acquired

 

 

 

 

 

3,259

 

 

 

 

 

 

 

Purchase consideration settled in cash

 

 

 

 

 

7,010

Loan settled on acquisition

 

 

 

 

 

137

Cash acquired

 

 

 

 

 

(341)

Cash outflow on acquisition

 

 

 

 

 

6,806

               

 

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 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 eight and 20 years.

 

12.          Deferred and contingent consideration on acquisitions

 

 

 

 

Rohasys

 

JG Finneran Associates Inc.

 

Total

 

 

 

£'000

 

£'000

 

£'000

At 1 December 2018

 

 

1,541

 

2,351

 

3,892

Cash paid in the year

 

 

(591)

 

(2,364)

 

(2,955)

Release of contingent consideration

 

 

(36)

 

-

 

(36)

Release of discount

 

 

89

 

-

 

89

Exchange movements

 

 

(55)

 

13

 

(42)

At 30 November 2019

 

 

948

 

-

 

948

 

Included within other payables

2019

£'000

 

2018

£'000

Deferred and contingent consideration - current

531

 

2,884

Deferred and contingent consideration - non-current

417

 

1,008

At 30 November

948

 

3,892

 

 

 

13.          Contingent liabilities

At 30 November 2019, the Group had the following advanced payment bonds (relating to monies received in advance on contracts) and performance bonds:

 

 

 

$'000

 

€'000

Advanced payment bonds

 

 

-

 

-

Performance bonds

 

 

8,534

 

638

At 30 November 2019

 

 

8,534

 

638

 

 

 

 

$'000

 

€'000

Advanced payment bonds

 

 

2,360

 

-

Performance bonds

 

 

7,476

 

-

At 30 November 2018

 

 

9,836

 

-

 

$8,478,000 (2018: $7,476,000) of the performance bonds relate to the contracts for filtration systems provided for gasification projects.  These projects are being commissioned, a process which is taking several years.  The Group has provided its best estimate of the amount of any potential loss arising from rectification and claims arising on these contracts within the £9.5 million warranty provisions disclosed in note 9.  The maximum potential unprovided exposure under these contracts is limited to £11.5 million.  In December 2019, a $930,000 performance bond was called by a customer, paid and cancelled.  The uncalled performance bonds are expected to be called or released no later than March 2023.

14.          Cash generated from operations

 

 

 

2019

£'000

 

2018

£'000

Operating profit

 

 

14,787

 

12,868

Post-employment benefits

 

 

(1,003)

 

(136)

Fair value movement of derivatives through profit and loss

 

 

(52)

 

40

IFRS 15 adjustment

 

 

(88)

 

-

Share based payments

 

 

585

 

610

Depreciation, amortisation and impairment

 

 

3,743

 

3,607

Loss on disposal of property, plant and equipment and intangibles

 

 

122

 

-

Operating cash flows before movement in working capital

 

 

18,094

 

16,989

Increase in inventories

 

 

(2,351)

 

(2,494)

Increase in trade and other receivables

 

 

(707)

 

(1,570)

(Decrease)/increase in payables

 

 

(7,209)

 

3,216

Increase/(decrease) in provisions

 

 

8,931

 

(806)

Increase in working capital

 

 

(1,336)

 

(1,654)

Cash generated from operations

 

 

16,758

 

15,335

 

15.          Basis of preparation 

The results for the year ended 30 November 2019 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union as at 30 November 2019.  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 2019, 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 2018, upon which the auditors reported without qualification, have been delivered to the Registrar of Companies.

 

 

15.          Basis of preparation continued

A. IFRS 15 Revenue from Contracts with Customers

The Group has adopted IFRS 15, 'Revenue from Contracts with Customers', for the year ended 30 November 2019.  This establishes a comprehensive framework for determining whether, how much and when revenue is recognised. 

The majority of the Group's transactions are unaffected by IFRS 15, however when the standard is applied to specific customer contracts previously recognised under construction contract accounting (IAS 11) this leads to a difference in the timing of recognising revenue. The impact of the timing difference varies from contract to contract.  In addition, certain companies provide installation services for goods shipped to customers as part of their sale of goods contracts.  Having reviewed these contracts, there is a change in accounting required under IFRS 15 to defer the installation related revenue.

As permitted by the standard, the Group has adopted the modified retrospective approach.  Under this approach the comparatives for the year ended 30 November 2018 have not been restated.  Instead, an adjustment in respect of the contracts open as at 1 December 2018 has been recognised in the opening retained earnings.

The following adjustment has been made to brought forward retained earnings and recognised in the Consolidated Statement of Changes in Equity:

Impact of adopting IFRS 15 on the opening reserves as at 1 December 2018

 

 

 

Retained earnings

£'000

Loss before tax

 

(88)

Tax

 

31

Impact at 1 December 2018

 

(57)

The impact of adoption in the year ended 30 November 2019 can be seen below and arises primarily from timing differences due to measuring the progress of Aerospace & Industrial division contracts using an output method of measuring progress towards complete satisfaction of performance obligations, based on milestones reached under IFRS 15 rather than the cost to cost ("percentage completion") method used under IAS 18 and IAS 11.

Impact on the consolidated income statement and other comprehensive income in the year ended 30 November 2019

 

 

 

 

As reported

 

 

 

Adjustments

 

 

Amount without adoption of IFRS15

 

£'000

 

£'000

 

£'000

Revenue

144,932

 

3,965

 

148,897

 

 

 

 

 

 

Operating profit

14,787

 

(434)

 

14,353

 

 

 

 

 

 

Total comprehensive income

7,459

 

(151)

 

7,308

 

 

 

15.          Basis of preparation continued

 

Impact on the consolidated balance sheet as at 30 November 2019

 

 

 

As reported

 

 

 

Adjustments

 

Amount without adoption of IFRS15

 

£'000

 

£'000

 

£'000

Non-current assets

97,699

 

-

 

97,699

 

 

 

 

 

 

Current assets

60,287

 

-

 

60,287

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

(25,989)

 

(3,262)

 

(29,251)

Current tax liabilities

(564)

 

62

 

(502)

Provisions for other liabilities and charges

(9,526)

 

2,917

 

(6,609)

 

(36,079)

 

(283)

 

(36,362)

 

 

 

 

 

 

Net current assets

24,208

 

(283)

 

23,925

 

 

 

 

 

 

Non-current liabilities

(26,572)

 

-

 

(26,572)

Net assets

95,335

 

(283)

 

95,052

 

 

 

 

 

 

 

 

B. IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. The standard replaces IAS 39 'Financial Instruments: Recognition and Measurement'.  The adoption of IFRS 9 'Financial Instruments' from 1 December 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements, principally in connection with accounting for bad debts, however the overall impact on the results for the year is not material.  In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated.

16.          Annual general meeting

The Company's Annual General Meeting will be held at 11.00 a.m. on Tuesday 21 April 2020 at the offices of Buchanan, 107 Cheapside, London EC2V 6DN.

17.          Related parties

There were no related party transactions in the year ended 30 November 2019 other than Directors' compensation.

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 2018, apart from Jasi Halai, who joined the Board on 18 June 2019. Paul Dean will retire from the Board on 3 February 2020.  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 2020.  Additional copies will be available from www.porvair.com. 


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Preliminary Results and Board Changes - RNS