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:
o the amortisation of acquired intangible assets of £0.6 million (2018: £0.6 million); and
o 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
2018
£'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:
o the amortisation of acquired intangible assets of £0.6 million (2018: £0.6 million); and
o 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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