Half Year Results 2019

Operating review

Overview

	2019		2018		Growth
	£m		£m		%
Revenue	72.0		59.7		21
Operating profit	7.8		5.6		39
Adjusted operating profit	8.0		5.8		38
Profit before tax	7.4		5.2		41
	Pence		Pence
Adjusted earnings per share	12.9		9.5		36
Earnings per share	12.4		10.7		16
	£m		£m
Net cash	3.2		2.2

 

Revenue growth was 21% (17% at constant currency). Strength in aerospace offset a slower start to the year in markets affected by global tariff or related US/China trade disturbances. Several larger orders in the Aerospace & Industrial division, which commenced shipment in the final quarter of 2018, were delivered in the period.

Profit before tax rose 41%, benefitting from higher volumes through the plants and better operating efficiencies. Adjusted earnings per share increased 36% to 12.9 pence. 

Over the last five years the Group has achieved revenue growth of 46% (8% CAGR), earnings per share growth of 92% (14% CAGR) and cash from operations of £67 million. 

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 is 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 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 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: Aviation & 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 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: 51% of revenue was in the Americas; 23% in Asia; 13% in continental Europe; 12% 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, 55% of revenue was manufactured in the US, 33% in the UK, 8% in 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.

Aerospace & Industrial

	2019		2018		Growth
	£m		£m		%
Revenue	32.1		21.7		48
Operating profit	4.1		2.4		68
Adjusted operating profit	4.2		2.5		68

 

This 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; intellectual property; and quality accreditations.

Revenue increased by 48% and margins improved with greater volume.  Demand in aerospace and US industrial was strong.  Several larger orders which commenced shipment in the final quarter of 2018 were delivered in the period. These included further gasification spares, for which similar orders should repeat periodically but will not be regular. In the US, work for nuclear clean-up and tighter marine emissions standards contributed, as did a full period of the Keystone acquisition. Sales into the microelectronics segment were affected by US/China trade issues, although the profit impact of this was modest.

Laboratory

	2019		2018		Growth
	£m		£m		%
Revenue	21.2		20.3		4
Inter segment revenue	(1.1)		(1.3)
External revenue	20.1		19.0		6
Operating profit	2.9		2.9		2
Adjusted operating profit	3.0		3.0		2

 

This division has two operating businesses: Porvair Sciences 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 active new product development.

After a strong 2018, revenue remained stable for the first half of 2019 with growth in Porvair Sciences offset by a slow start to the year for Seal Analytical. Porvair Sciences grew sales by 10% with demand increasing in most segments supported by new production capacity and patented molecular separations technology acquired in 2018. Seal Analytical sales were down 1% with demand from China affected by tariff changes, and lower production during the switch over to manufacturing the newest platform, the AA500. Tooling is now complete and the new model is in full production. Orders for the second half are healthy.

Metal Melt Quality

	2019		2018		Growth
	£m		£m		%
Revenue	19.8		19.0		4
Operating profit	1.6		1.2		29

 

This 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.

Revenue at constant currency was down 2%.  Revenue in the US in automotive and agricultural end markets was affected by global trade issues, however revenue in China grew 33%. Operating profit grew through strong operational efficiencies in the US and losses in China reduced by a third.

Impact of the adoption of IFRS 15

The Group has adopted IFRS 15 for the first time in these results.  The Group profit before tax was £0.2 million higher in the period and net assets and total equity were £0.1 million lower at 1 December 2018 under IFRS 15 than would have been the case under the previous revenue reporting standards.  Under the adjustment made at 1 December 2018 to reflect the adoption of IFRS 15, deferred revenue of £7.7 million and accrued revenue of £0.3 million was eliminated.

As a consequence of the adoption of IFRS 15 provisions for warranties of £8.2 million were created and accrued losses of £0.7 million were eliminated.  Matters that could affect the timing and quantum of the utilisation of the provisions include the impact of any remedial work, claims against the outstanding performance bonds, and the demonstrated life of the filtration equipment installed. Any future residual release to the income statement would be a non-cash item.

Alternative performance measures

	2019		2018		Growth
	£m		£m		%
Adjusted operating profit	8.0		5.8		38
Adjusted profit before tax	7.6		5.5		40
Adjusted profit for the year	5.9		4.3		36

 

Adjusted operating profit and adjusted profit before tax exclude the impact of acquiring businesses:

·      the amortisation of acquired intangible assets was £0.3 million (2018: £0.2 million); and

·      other adjustments to profit and loss related to acquiring businesses was £nil million (2018: £0.1 million).

 

Adjusted profit for the year excludes an exceptional one off tax credit of £nil (2018: £778,000), 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.

 

More detailed disclosure of the alternative performance measures is given in note 1.

 

Interest

The Group incurred an interest charge of £0.4 million (2018: £0.3 million).  £0.2 million (2018: £0.2 million) relates to the finance cost of the defined benefit pension scheme.  The remainder comprises undrawn commitment fees and interest on the Group's banking facilities.

Tax

The Group tax charge was £1.7 million (2018: £0.4 million).  The adjusted income tax expense was £1.7 million (2018: £1.1 million).  The underlying rate of income tax for the period has increased to 24% (2018: 22%).

Earnings per share and dividends

The basic earnings per share for the period increased to 12.4 pence (2018: 10.7 pence).   Adjusted earnings per share grew by 36% to 12.9 pence (2018: 9.5 pence). 

The Board has declared an interim dividend of 1.7 pence (2018: 1.6 pence) per share, an increase of 6%.

Investment

In the last five years, £42.4 million has been invested in acquisitions and capacity expansion.  The Group invested £2.8 million (2018: £7.0 million) in acquisitions and capital expenditure in first half of 2019.

Cash flow and net debt

Cash generated from operations in the six months to 31 May 2019 was £1.4 million (2018: £0.9 million). Working capital increased in the period by £7.5 million (2018: £5.9 million).  Working capital usually increases in the first half.  A particularly strong May trading performance this year led to unusually high receivables at the period end.  In addition, inventories are higher than the year end reflecting the strength of the order book over the next quarter and increases as a result of Brexit preparations, which have not yet been utilised.

Net cash at 31 May 2019 was £3.2 million (31 May 2018: £2.2 million; 30 November 2018: £6.6 million).

Return on capital employed

The Group's return on capital employed increased to 16% (2018: 14%).  Excluding the impact of goodwill, acquired intangible assets and the pension liability the return on operating capital employed was 46% (2018: 44%).

Current trading and outlook

Porvair has started 2019 strongly, with demand in aerospace and industrial markets more than offsetting the effects of global trade disturbances seen in some of our smaller product lines.  The Group's new product pipeline is promising and investment in capacity has continued.  Order books for the second half are robust and prospects are encouraging.

 

Ben Stocks

Group Chief Executive

21 June 2019

 

Related parties

There were no related party transactions in the six months ended 31 May 2019 (2018: none).

 

Principal risks

Each division considers strategic, operational and financial risks and identifies actions to mitigate those risks.  These risk profiles are reviewed by the Board and updated at least annually.  The principal risks and uncertainties for the remaining six months of the financial year are discussed below.  Further details of the Group's risk profile analysis can be found in the Strategic Report section of the Annual Report for the year ended 30 November 2018.

 

Although healthy at 31 May 2019, certain elements of the Group's order position can change quickly in the face of changing economic circumstances.  The Metal Melt Quality division, Laboratory division and general industrial filtration within the Aerospace & Industrial division all have relatively short lead times and order cycles and, therefore, revenues are subject to fluctuations, which could have a material effect on the Group's results for the balance of 2019.

 

Forward looking statements

Certain statements in this half yearly financial information are forward-looking.  Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct.  Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

 

We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

 

 

 

 

 

 

Condensed consolidated income statement

For the six months ended 31 May

			Six months ended 31 May
			2019		2018
	Note		Unaudited		Unaudited
			£'000		£'000
Revenue	1,2		72,039		59,685
Cost of sales			(47,518)		(39,921)
Gross profit			24,521		19,764
Other operating expenses			(16,758)		(14,174)
Adjusted operating profit	1,2		8,018		5,807
Adjustments
Amortisation of acquired intangibles			(269)		(163)
Other acquisition related adjustments			14		(54)
Operating profit	1,2		7,763		5,590
Interest payable and similar charges			(390)		(346)
Profit before income tax			7,373		5,244
Adjusted income tax expense	1		(1,742)		(1,146)
Adjustments
Exceptional reduction of US deferred tax liability			-		778
Income tax expense	1		(1,742)		(368)
Profit for the period			5,631		4,876
Profit attributable to:
Owners of the parent			5,634		4,877
Non-controlling interests			(3)		(1)
Profit for the period			5,631		4,876
Earnings per share (basic)	3		12.4p		10.7p
Adjusted earnings per share (basic)	3		12.9p		9.5p
Earnings per share (diluted)	3		12.3p		10.7p
Adjusted earnings per share (diluted)	3		12.8p		9.4p

 

 

 

Condensed consolidated statement of comprehensive income

For the six months ended 31 May

	Six months ended 31 May
	2019 Unaudited		2018 Unaudited
	£'000		£'000
Profit for the period	5,631		4,876
Other comprehensive income:
Items that will not be reclassified to profit and loss
Actuarial (losses)/gains in defined benefit pension plans net of tax	(2,372)		490
Items that may be subsequently reclassified to profit or loss
Exchange differences on translation of foreign subsidiaries	757		994
	757		994
Net other comprehensive income	(1,615)		1,484
Total comprehensive income for the period	4,016		6,360
Comprehensive income attributable to:
Owners of the parent	4,019		6,361
Non-controlling interests	(3)		(1)
Total comprehensive income for the period	4,016		6,360

 

The accompanying notes are an integral part of this interim financial information. 

 

 

Condensed consolidated balance sheet

As at 31 May

		As at 31 May				As at 30 November
	Note	2019 Unaudited		2018 Unaudited		2018 Audited
		£'000		£'000		£'000
Non-current assets
Property, plant and equipment	5	22,375		20,453		21,827
Goodwill and other intangible assets	5	67,499		64,856		67,001
Deferred tax asset		2,647		2,725		2,304
		92,521		88,034		91,132
Current assets
Inventories		22,810		18,626		19,856
Trade and other receivables		26,407		22,881		22,336
Cash and cash equivalents		8,194		8,461		11,492
		57,411		49,968		53,684
Current liabilities
Trade and other payables		(23,739)		(30,574)		(32,826)
Current tax liabilities		(1,356)		(853)		(1,530)
Derivative financial instruments		(43)		(44)		-
Provisions for other liabilities and charges	12	(10,435)		(854)		(506)
		(35,573)		(32,325)		(34,862)
Net current assets		21,838		17,643		18,822
Non-current liabilities
Bank loans		(4,946)		(6,303)		(4,867)
Deferred tax liability		(2,148)		(1,781)		(2,032)
Retirement benefit obligations		(14,409)		(14,298)		(12,356)
Other payables		(413)		(3,050)		(1,008)
Provisions for other liabilities and charges	12	(231)		(178)		(219)
		(22,147)		(25,610)		(20,482)
Net assets		92,212		80,067		89,472
Capital and reserves
Share capital	6	917		914		917
Share premium account	6	35,958		35,932		35,958
Cumulative translation reserve	7	11,327		7,958		10,570
Retained earnings	7	44,010		35,244		42,024
Equity attributable to equity shareholders of the parent		92,212		80,048		89,469
Non-controlling interests		-		19		3
Total equity		92,212		80,067		89,472

 

The interim financial information on pages 7 to 22 was approved by the Board of Directors on 21 June 2019 and was signed on its behalf by:

 

 

 

Ben Stocks                                                                                                                                          Chris Tyler

Group Chief Executive                                                                                                                       Group Finance Director

 

The accompanying notes are an integral part of this interim financial information.

Condensed consolidated cash flow statement

For the six months ended 31 May

		Six months ended 31 May
	Note	2019 Unaudited		2018 Unaudited
		£'000		£'000
Cash flows from operating activities
Cash generated from operations	8	1,430		860
Interest paid		(152)		(120)
Tax paid		(1,549)		(1,030)
Net cash used by operating activities		(271)		(290)
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)	11	(591)		(5,294)
Purchase of property, plant and equipment	5	(1,844)		(1,401)
Purchase of intangible assets	5	(330)		(255)
Net cash used in investing activities		(2,765)		(6,950)
Cash flows from financing activities
Net proceeds from the issue of ordinary shares	6	-		102
Purchase of Employee Benefit Trust shares	6	(271)		(207)
(Decrease)/increase in borrowings	9	(31)		3,218
Net cash (used in)/generated from financing activities		(302)		3,113
Net decrease in cash and cash equivalents	9	(3,338)		(4,127)
Effects of exchange rate changes		40		91
		(3,298)		(4,036)
Cash and cash equivalents at the beginning of the period		11,492		12,497
Cash and cash equivalents at the end of the period		8,194		8,461

 

 

The accompanying notes are an integral part of this interim financial information.

 

Condensed consolidated statement of changes in equity

For the six months ended 31 May (Unaudited)

	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 period	-	-	-	4,877	4,877		-	4,877
Other comprehensive income/(expense):
Exchange differences on translation of foreign subsidiaries	-	-	994	-	994		-	994
Actuarial gains in defined benefit pension plans net of tax	-	-	-	490	490		-	490
Total comprehensive income for the period	-	-	994	5,367	6,361		-	6,361
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(207)	(207)		-	(207)
Proceeds from shares issued	1	101	-	-	102		-	102
Employee share option schemes:
value of employee services net of tax	-	-	-	152	152		-	152
Dividends approved as final or paid	-	-	-	(1,229)	(1,229)		-	(1,229)
Total transactions with owners recognised directly in equity	1	101	-	(1,284)	(1,182)		-	(1,182)
Adjustment arising from change in non-controlling interest	-	-	-	-	-		(1)	(1)
Balance at 31 May 2018	914	35,932	7,958	35,244	80,048		19	80,067
Balance at 30 November 2018	917	35,958	10,570	42,024	89,469		3	89,472
IFRS 15 adjustment (note 15)	-	-	-	(57)	(57)		-	(57)
Balance at 1 December 2018	917	35,958	10,570	41,967	89,412		3	89,415
Profit for the period	-	-	-	5,634	5,634		-	5,634
Other comprehensive income/(expense):
Exchange differences on translation of foreign subsidiaries	-	-	757	-	757		-	757
Actuarial losses in defined benefit pension plans net of tax	-	-	-	(2,372)	(2,372)		-	(2,372)
Total comprehensive income for the period	-	-	757	3,262	4,019		-	4,019
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(271)	(271)		-	(271)
Employee share option schemes:
- value of employee services net of tax	-	-	-	420	420		-	420
Dividends approved or paid	-	-	-	(1,368)	(1,368)		-	(1,368)
Total transactions with owners recognised directly in equity	-	-	-	(1,219)	(1,219)		-	(1,219)
Adjustment arising from change in non-controlling interest	-	-	-	-	-		(3)	(3)
Balance at 31 May 2019	917	35,958	11,327	44,010	92,212		-	92,212

 

The accompanying notes are an integral part of this interim financial information.

 

Notes to the condensed half-yearly consolidated financial information

 

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

		2019		2018		Growth
Aerospace & Industrial		£'000		£'000		%
Underlying revenue		29,844		20,872		43
Acquisitions		1,426		638
Revenue at constant currency		31,270		21,510		45
Exchange		868		190
Revenue as reported		32,138		21,700		48
Laboratory
Underlying revenue		18,213		17,605		3
Acquisitions		804		942
Revenue at constant currency		19,017		18,547		3
Exchange		1,045		427
Revenue as reported		20,062		18,974		6
Metal Melt Quality
Revenue at constant currency		18,178		18,528		(2)
Exchange		1,661		483
Revenue as reported		19,839		19,011		4
Group
Underlying revenue		66,235		57,005		16
Acquisitions		2,230		1,580
Revenue at constant currency		68,465		58,585		17
Exchange		3,574		1,110
Revenue as reported		72,039		59,685		21

 

 

Revenue at constant currency is derived from translating overseas subsidiaries at budgeted fixed exchange rates.  In 2019 and 2018 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.  

 

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			Total £'000				Adjusted £'000		Adjustments £'000			Total £'000
Operating profit			8,018		(255)			7,763				5,807		(217)	5,590
Finance costs:			(390)		-			(390)				(346)		-	(346)
Profit before income tax			7,628		(255)			7,373				5,461		(217)	5,244
Income tax expense			(1,742)		-			(1,742)				(1,146)		778	(368)
Profit for the year			5,886		(255)			5,631				4,315		561	4,876

 

An analysis of adjusting items is given below:

	2019		2018
Affecting operating profit	£'000		£'000
Amortisation of intangible assets acquired through acquisitions	(269)		(163)
Release of contingent consideration	14		-
Acquisition expenses	-		(54)
	(255)		(217)
Affecting tax
Tax - exceptional item	-		778
	-		778
Total adjusting items	(255)		561

 

Adjusted operating profit and adjusted profit before tax exclude:

·      the impact of acquiring businesses:

o  the amortisation of acquired intangible assets was £0.3 million (2018: 0.2 million); and

o  acquisition expenses and other adjustments to the income statement related to acquiring businesses was £nil (2018: £0.1 million).

 

Adjusted profit for the year excludes the adjustments to profit before tax and an exceptional one off tax credit of £nil (2018: £0.8 million) 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.             Segmental analyses

The chief operating decision maker has been identified as the Board of Directors.  The Board of Directors review the Group's internal reporting in order to assess performance and allocate resources.  Management has determined the operating segments based on this reporting.

 

As at 31 May 2019, the Group is organised on a worldwide basis into three operating segments:

1)    Aerospace & Industrial

2)    Laboratory

3)    Metal Melt Quality

 

The segment results for the period ended 31 May 2019 are as follows:

 

2019	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	32,145		21,193		19,841		-		73,179
Inter-segment revenue	(7)		(1,131)		(2)		-		(1,140)
Revenue	32,138		20,062		19,839		-		72,039
Adjusted operating profit/(loss)	4,241		3,047		1,564		(834)		8,018
Amortisation of acquired intangibles	(145)		(124)		-		-		(269)
Other acquisition related adjustments	-		14		-		-		14
Operating profit/(loss)	4,096		2,937		1,564		(834)		7,763
Interest payable and similar charges	-		-		-		(390)		(390)
Profit/(loss) before income tax	4,096		2,937		1,564		(1,224)		7,373
Income tax expense	-		-		-		(1,742)		(1,742)
Profit/(loss) for the year	4,096		2,937		1,564		(2,966)		5,631

 

The segment results for the period ended 31 May 2018 are as follows:

 

2018	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	21,710		20,306		19,011		-		61,027
Inter-segment revenue	(10)		(1,332)		-		-		(1,342)
Revenue	21,700		18,974		19,011		-		59,685
Adjusted operating profit/(loss)	2,529		2,995		1,211		(928)		5,807
Amortisation of acquired intangibles	(39)		(124)		-		-		(163)
Other acquisition related adjustments	(54)		-		-		-		(54)
Operating profit/(loss)	2,436		2,871		1,211		(928)		5,590
Interest payable and similar charges	-		-		-		(346)		(346)
Profit/(loss) before income tax	2,436		2,871		1,211		(1,274)		5,244
Income tax expense	-		-		-		(368)		(368)
Profit/(loss) for the year	2,436		2,871		1,211		(1,642)		4,876

 

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.             Segmental analyses continued

 

Segment assets and liabilities

 

At 31 May 2019 - Unaudited	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	65,154		39,247		34,536		2,801		141,738
Cash and cash equivalents	-		-		-		8,194		8,194
Total assets	65,154		39,247		34,536		10,995		149,932
Segmental liabilities	(18,044)		(10,362)		(4,470)		(5,489)		(38,365)
Retirement benefit obligations	-		-		-		(14,409)		(14,409)
Bank overdraft and loans	-		-		-		(4,946)		(4,946)
Total liabilities	(18,044)		(10,362)		(4,470)		(24,844)		(57,720)

 

At 31 May 2018 - Unaudited	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	55,042		35,675		35,996		2,828		129,541
Cash and cash equivalents	-		-		-		8,461		8,461
Total assets	55,042		35,675		35,996		11,289		138,002
Segmental liabilities	(16,255)		(9,780)		(4,751)		(6,548)		(37,334)
Retirement benefit obligations	-		-		-		(14,298)		(14,298)
Bank overdraft and loans	-		-		-		(6,303)		(6,303)
Total liabilities	(16,255)		(9,780)		(4,751)		(27,149)		(57,935)

 

At 30 Nov 2018 - Audited	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)

 

 

2.             Segmental analyses continued

 

Geographical analysis

Revenue

	Six months ended 31 May
	2019 Unaudited			2018 Unaudited
	By destination £'000	By origin £'000		By destination £'000	By origin £'000
United Kingdom	7,787	25,616		7,550	17,539
Continental Europe	9,558	5,523		9,872	5,536
United States of America	30,921	38,388		25,724	34,661
Other NAFTA	3,965	-		4,146	-
South America	1,041	-		929	-
Asia	18,198	2,512		10,628	1,949
Africa	569	-		836	-
	72,039	72,039		59,685	59,685

 

3.             Earnings per share

	Six months ended 31 May
As reported	2019 Unaudited				2018 Unaudited
	Earnings     £'000	Weighted average number of shares	Per share amount   Pence		Earnings     £'000	Weighted average number of shares	Per share amount   Pence
Basic EPS - earnings attributable to ordinary shareholders	5,634				4,877
Shares in issue		45,842,280				45,661,303
Shares owned by the Employee Benefit Trust		(222,874)				(135,576)
Basic earnings per share	5,634	45,619,406	12.4		4,877	45,525,727	10.7
Effect of dilutive securities - share options	-	288,827	(0.1)		-	249,215	-
Diluted earnings per share	5,634	45,908,233	12.3		4,877	45,774,942	10.7

 

	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	5,634				4,877
Adjusting items (note 1)	255				(561)
Adjusted earnings attributable to ordinary shareholders	5,889				4,316
Adjusted basic earnings per share	5,889	45,619,406	12.9		4,316	45,525,727	9.5
Adjusted diluted earnings per share	5,889	45,908,233	12.8		4,316	45,774,942	9.4

 

 

 

4.             Dividends per share

	Six months ended 31 May
	2019			2018
	Unaudited			Unaudited
	Per share	£'000		Per share	£'000
Final dividend approved	3.0p	1,368		2.7p	1,229

 

The final dividend approved for the year ended 30 November 2018 was paid to shareholders on 7 June 2019.

 

The Directors have declared an interim dividend of 1.7 pence (2018: 1.6 pence) per share to be paid on 30 August 2019 to shareholders on the register at the close of business on 26 July 2019.  The ex-dividend date for the shares is 25 July 2019.

 

5.             Property, plant and equipment and goodwill and other intangible assets

Six months ended 31 May 2019 - Unaudited		Property, plant and equipment		Goodwill and other intangible assets		Total
		£'000		£'000		£'000
Opening net book amount at 1 December 2018		21,827		67,001		88,828
Additions		1,844		330		2,174
Disposals		(52)		-		(52)
Depreciation and amortisation		(1,430)		(348)		(1,778)
Exchange movements		186		516		702
Closing net book amount at 31 May 2019		22,375		67,499		89,874

 

Six months ended 31 May 2018 - Unaudited		Property, plant and equipment		Goodwill and other intangible assets		Total
		£'000		£'000		£'000
Opening net book amount at 1 December 2017		19,997		57,227		77,224
Additions		1,401		255		1,656
Acquisitions		192		6,894		7,086
Depreciation and amortisation		(1,416)		(298)		(1,714)
Exchange movements		279		778		1,057
Closing net book amount at 31 May 2018		20,453		64,856		85,309

 

6.             Share capital and premium

		Number of shares (thousands)		Ordinary shares Unaudited		Share premium account Unaudited		Total Unaudited
				£'000		£'000		£'000
At 1 December 2017		45,641		913		35,831		36,744
Employee share options schemes:
Exercise of options under share option schemes		43		1		101		102
At 31 May 2018		45,684		914		35,932		36,846
At 1 December 2018		45,843		917		35,958		36,875
At 31 May 2019		45,843		917		35,958		36,875

The authorised number of ordinary shares is 75 million (2018: 75 million) shares with a par value of 2.0 pence (2018: 2.0 pence) per share.  All issued shares are fully paid.  No (2018: 42,600) ordinary shares of 2.0 pence each were issued in the period on the exercise of employee share options for a cash consideration of £nil (2018: £102,000). 

 

The Group uses an Employee Benefit Trust to purchase shares in the Company to satisfy entitlements under the Group's long term incentive plan.  During the period, the Group purchased 54,000 (2018: 42,000) ordinary shares of 2.0 pence for a consideration of £271,000 (2018: £207,000).  As at 31 May 2019 the Employee Benefit Trust held a total of 250,000 ordinary shares of 2.0 pence (2018: 154,000) at a cost of £1,239,000 (2018: £759,000) and a market value of £1,350,000 (2018: £801,000).

 

7.             Other reserves

			Cumulative translation reserve Unaudited		Retained earnings Unaudited
			£'000		£'000
At 1 December 2017			6,964		31,161
Profit for the period attributable to shareholders			-		4,877
Direct to equity:
Final dividend approved			-		(1,229)
Actuarial loss			-		590
Tax on actuarial loss			-		(100)
Share based payments			-		322
Tax on share based payments			-		(170)
Employee Benefit Trust shares			-		(207)
Exchange differences			994		-
At 31 May 2018			7,958		35,244
At 30 November 2018			10,570		42,024
Recognised under IFRS 15			-		(57)
At 1 December 2018			10,570		41,967
Profit for the period attributable to shareholders			-		5,634
Direct to equity:
Final dividend approved			-		(1,368)
Actuarial loss			-		(2,858)
Tax on actuarial loss			-		486
Share based payments			-		326
Tax on share based payments			-		94
Employee Benefit Trust shares			-		(271)
Exchange differences			757		-
At 31 May 2019			11,327		44,010

 

8.             Cash generated from operations

		Six months ended 31 May
		2019 Unaudited £'000		2018 Unaudited £'000
Operating profit		7,763		5,590
Post-employment benefits		(983)		(972)
Fair value of derivatives through profit and loss		43		84
Share based payments		238		322
Depreciation and amortisation		1,778		1,714
Loss on disposal of property, plant and equipment		52		-
Operating cash flows before movement in working capital		8,891		6,738
Increase in inventories		(2,792)		(1,538)
Increase in trade and other receivables		(3,912)		(2,478)
Decrease in payables		(10,640)		(1,499)
Increase/(decrease) in provisions		9,883		(363)
Increase in working capital		(7,461)		(5,878)
Cash generated from operations		1,430		860

 

9.             Reconciliation of net cash flow to movement in net cash

	Six months ended 31 May
	2019 Unaudited £'000		2018 Unaudited £'000
Net decrease in cash and cash equivalents	(3,338)		(4,127)
Effects of exchange rate changes	(70)		(283)
Repayment/(increase) in borrowings	31		(3,218)
Net cash at the beginning of the period	6,625		9,786
Net cash at the end of the period	3,248		2,158

 

10.          Contingent liabilities

At 31 May 2019, the Group had advanced payment bonds totalling US$2.4 million (30 November 2018: US$2.4 million) relating to monies received in advance on contracts.  The advanced payment bonds are released no later than November 2019.  The Group has performance bonds totalling US$7.5 million (30 November 2018: US$7.5 million). The bonds are released after a warranty period and in any event no later than April 2022.

 

11.          Fair value estimation

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The condensed half-yearly consolidated financial information does not include all financial risk management information and disclosures required in the annual financial statements; it should be read in conjunction with the Group's annual financial statements as at 30 November 2018.  There have been no changes in the risk management processes or in any risk management policies since the year end.

 

The Group's finance department performs the valuations of financial assets and liabilities required for financial reporting purposes, including Level 3 fair values.  The department reports directly to the Group Finance Director and the Audit Committee.  Discussions of valuation processes and results are held between the Group Finance Director, the Audit Committee and the valuation team at least twice a year, in line with the Group's external reporting dates.

 

The table below analyses financial instruments carried at fair value, by valuation method.  The different levels have been defined below:

·    Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

·    Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

·    Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

		Level 1		Level 2		Level 3		Total
		£'000		£'000		£'000		£'000
Financial liabilities at fair value through profit or loss:
-       Trading derivatives		-		(43)		-		(43)
Contingent consideration		-		-		(3,343)		(3,343)
At 31 May 2019		-		(43)		(3,343)		(3,386)
Financial liabilities at fair value through profit or loss:
Contingent consideration		-		-		(3,892)		(3,892)
At 30 November 2018		-		-		(3,892)		(3,892)

There were no transfers between levels during the period, and there were no changes in valuation techniques in the period.

 

Level 2 trading and hedging derivatives comprise forward foreign exchange contracts. These forward foreign exchange contracts have been fair valued using forward exchange rates that are quoted in an active market.  The effects of discounting are generally insignificant for Level 2 derivatives.

 

 

11.          Fair value estimation continued

 

A summary of the movements in deferred and contingent consideration on acquisitions contained in Level 3 is given below:

			J. G. Finneran Associates, Inc.		Rohasys BV		Total
			£'000		£'000		£'000
At 1 December 2018			(2,351)		(1,541)		(3,892)
Cash paid in the period			-		591		591
Recognised in the income statement:
-       Unearned contingent consideration			-		14		14
-       Unwinding discounted contingent consideration			-		(46)		(46)
Foreign exchange movement			(29)		19		(10)
At 31 May 2019			(2,380)		(963)		(3,343)

 

		J. G. Finneran Associates, Inc.		Rohasys BV		Keystone Filter		Total
		£'000		£'000		£'000		£'000
At 1 December 2017		(4,432)		-		-		(4,432)
Purchase consideration additions in the period		-		(2,746)		(5,219)		(7,965)
Cash paid in the period		-		1,454		3,840		5,294
Recognised in the income statement:
-       Unwinding discounted contingent consideration		-		(46)		-		(46)
Foreign exchange movement		(77)		(3)		(49)		(129)
At 31 May 2018		(4,509)		(1,341)		(1,428)		(7,278)

 

The fair value of the following financial assets and liabilities approximate their carrying amount: borrowings, trade and other receivables, other current financial assets, cash and cash equivalents, and trade and other payables.

 

12.          Provisions for other liabilities and charges

				Dilapidations		Warranty		Total
				£'000		£'000		£'000
At 30 November 2018				219		506		725
Recognised under IFRS 15				-		8,187		8,187
At 1 December 2018				219		8,693		8,912
Charged to/(released from) the consolidated income statement:
-       Unwinding of discount				12		-		12
-       Warranty				-		1,786		1,786
Utilised:
-       Warranty				-		(44)		(44)
At 31 May 2019				231		10,435		10,666

 

				Dilapidations		Warranty		Total
				£'000		£'000		£'000
At 1 December 2017				178		1,217		1,395
Charged to/(released from) the consolidated income statement:
-       Warranty				-		(363)		(363)
At 31 May 2018				178		854		1,032

 

The provisions arise from a discounted dilapidations provision for leased property, which is expected to be utilised in 2023, and sale warranties.

 

12.          Provisions for other liabilities and charges continued

Warranty provisions arising on the adoption of IFRS 15 reflect the impact of recognising potential future costs arising on construction contracts, which had previously been held as future cost estimates and gave rise to deferred revenue.  The warranty provision includes amounts that will be utilised or released as these contracts approach completion.  Matters that could affect the timing and quantum of the utilisation of the provisions include the impact of any remedial work, claims against the outstanding performance bonds, and the demonstrated life of the filtration equipment installed. Any future residual release to the income statement would be a non-cash item.

 

13.          Exchange rates

Exchange rates for the US dollar and Euro during the period were:

	Average rate to 31 May 19	Average rate to 31 May 18	Closing rate at 31 May 19	Closing rate at 30 Nov 18
	Unaudited	Unaudited	Unaudited	Unaudited
US dollar	1.29	1.38	1.26	1.28
Euro	1.14	1.14	1.13	1.13

 

14.          Seasonality

The results for the six months ended 31 May 2019 are impacted by a lower number of working days in the first six months of the year than in the second half of the year.

 

15.          Basis of preparation

Porvair plc is a public limited company registered in the UK and listed on the London Stock Exchange.

 

This unaudited condensed half-yearly consolidated financial information for the six months ended 31 May 2019 has been prepared in accordance with the Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union.  The condensed half-yearly consolidated financial information should be read in conjunction with the annual financial statements for the year ended 30 November 2018, which have been prepared in accordance with IFRSs as adopted by the European Union.

 

Except as described below, the accounting policies applied in these interim financial statements are consistent with those applied in the Group's consolidated financial statements for the year ended 30 November 2018.  The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 30 November 2019. The Group has adopted IFRS 15 'Revenue from Contracts with Customers' (see A) and IFRS 9 Financial Instruments (see B) from 1 December 2018.  A number of other new standards are effective from 1 December 2018 but they do not have a material effect on the Group's financial statements.

 

A. IFRS 15 Revenue from Contracts with Customers

 

The Group has adopted IFRS 15, 'Revenue from Contracts with Customers', for the year ending 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 will be recognised in the opening retained earnings.

 

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

 

 

15.          Basis of preparation continued

 

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

 

		Retained earnings Unaudited £'000
Loss before tax		(88)
Tax		31
Impact at 1 December 2018		(57)

 

The impact of adoption in the period to 31 May 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 condensed consolidated income statement and other comprehensive income in the six months ended 31 May 2019

 

	As reported		Adjustments Unaudited		Amount without adoption of IFRS15
	£'000		£'000		£'000
Revenue	72,039		(456)		71,583
Operating profit	7,763		(237)		7,526
Total comprehensive income	4,016		(180)		3,836

 

Impact on the condensed consolidated statement of financial position as at 31 May 2019

 

	As reported		Adjustments Unaudited		Amount without adoption of IFRS15
	£'000		£'000		£'000
Non-current assets	92,521		-		92,521
Current assets	57,441		-		57,441
Current liabilities
Trade and other payables	(23,739)		(8,583)		(32,322)
Current tax liabilities	(1,356)		25		(1,331)
Derivative financial instruments	(43)		-		(43)
Provisions for other liabilities and charges	(10,435)		8,435		(2,000)
	(35,573)		(123)		(35,696)
Net current assets	21,838		(123)		21,715
Non-current liabilities	(22,147)		-		(22,147)
Net assets	92,212		(123)		92,089

 

 

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, however the overall impact on the interim financial information is not material.  In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated.

15.          Basis of preparation continued

 

Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

 

This condensed half-yearly consolidated financial information has been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of certain current assets, financial assets and financial liabilities held for trading and derivative contracts, which are held at fair value.

 

The preparation of condensed half-yearly consolidated financial information in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed half-yearly consolidated financial information and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates.  In preparing the condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 30 November 2018, with the exception of changes in estimates that are required in determining the provision for income taxes.

 

After having made appropriate enquiries, including a review of progress against the Group's budget for 2019, its medium term plans and taking into account the banking facilities available until May 2022, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the condensed half yearly consolidated financial information.  Accordingly, they continue to adopt the going concern basis in preparing this condensed half-yearly consolidated financial information.

 

This condensed half-yearly consolidated financial information and the comparative figures does not constitute full accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 November 2018, which were approved by the Board of Directors on 25 January 2019, and which include an unqualified audit report, no emphasis of matter paragraph and no statements under sections 498(2) or (3) of the Companies Act 2006, have been delivered to the Registrar of Companies.  This condensed half-yearly consolidated financial information has been reviewed, not audited.

 

The condensed half-yearly consolidated financial information does not include all financial risk management information and disclosures required in the annual financial statements; it should be read in conjunction with the Group's annual financial statements for the year ended 30 November 2018.  There have been no changes in any risk management policies since the year end.

 

This report will be available at Porvair plc's registered office at 7 Regis Place, Bergen Way, King's Lynn, PE30 2JN and on the Company's website www.porvair.com.

 

 

Statement of directors' responsibilities

 

The Directors confirm that this condensed half-yearly consolidated financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·         an indication of important events that have occurred during the first six months of the year, their impact on the condensed half-yearly consolidated financial information and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·         material related party transactions in the first six months of the year and any material changes in the related party transactions described in the last annual report.

 

With the exception of Jasi Halai, appointed on 18 June 2019, the Directors of Porvair plc are listed in the Porvair plc Annual Report for the year ended 30 November 2018.  A list of current Directors is maintained on the Porvair plc website www.porvair.com.

 

By order of the board

 

 

Ben Stocks	Chris Tyler
Group Chief Executive	Group Finance Director

 

21 June 2019

 

INDEPENDENT REVIEW REPORT TO PORVAIR PLC

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 May 2019 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated cash flow statement, condensed consolidated statement of changes in equity, and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 15, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 May 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

Deloitte LLP

Statutory Auditor

Cambridge, United Kingdom

21 June 2019