REG - Porvair PLC - Interim Results
03/07/2023 07:00
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RNS Number : 6238E Porvair PLC 03 July 2023
For immediate
release
3 July 2023
Porvair plc
Interim results for the six months ended 31 May 2023
Porvair plc ("Porvair" or "the Group"), the specialist filtration, laboratory
and environmental technology group, announces its interim results for the six
months ended 31 May 2023 ("H1 2023" or the "period").
Highlights:
· Revenue 10% higher at £90.6 million (2022: £82.3 million), 5%
higher on a constant currency basis*.
· Operating profit 16% higher at £11.7 million (2022: £10.1
million).
· Adjusted operating profit* 17% higher at £12.2 million (2022:
£10.4 million).
· Profit before tax 18% higher at £11.2 million (2022: £9.5
million).
· Adjusted profit before tax* 20% higher at £11.8 million (2022:
£9.8 million).
· Basic earnings per share 20% higher at 19.3 pence (2022: 16.1
pence).
· Adjusted basic earnings per share* 22% higher at 20.3 pence
(2022: 16.6 pence).
· Cash at £19.7 million (31 May 2022: £12.2 million; 30 November
2022: £18.3 million) after investing £2.9 million (2022: £2.3 million) in
capital expenditure and acquisitions.
· Interim dividend increased 0.1 pence per share to 2.0 pence
(2022: 1.9 pence).
Commenting on the results and outlook, Ben Stocks, Chief Executive, said:
"This is a record set of results for the half-year and shows the Group
performing well overall, despite inconsistency of demand across markets
served. Aerospace, petrochemical and water quality markets are having a
strong year. As expected at the time of the results announcement in January,
orders in industrial and laboratory consumable segments have been lower as
they go through a de-stocking cycle and lead-times return to more normal
levels.
"Looking ahead, while noting that inconsistent order patterns pose risks to
forecasting, the Board expects the Group's full year result to be ahead of
that for 2022. The aggregate Group order book, which has been at record
levels for much of 2023, remains high. Porvair's long-term earnings record
is supported by established global trends: tightening environmental
regulations; growth in analytical science; the need for clean water;
carbon-efficient transportation; the replacement of plastic and steel with
aluminium; and the drive for manufacturing process quality and efficiency.
The Board expects the momentum of this strong start to 2023 will carry
through to a satisfactory conclusion to the year and views the longer-term
with confidence."
*See notes 1, 2 and 3 for definitions and reconciliations.
For further information please contact:
Porvair plc 01553 765 500
Ben Stocks, Chief Executive
James Mills, Group Finance Director
Buchanan Communications 020 7466 5000
Charles Ryland / Simon Compton / Jack Devoy
An analyst briefing will take place at 9:30 a.m. on Monday 3 July 2023, please
contact Buchanan for details.
An audiocast of the meeting and the presentation will subsequently be made
available at www.porvair.com (http://www.porvair.com) .
Operating review
The Group has begun 2023 with a record set of results, delivering 10% revenue
growth (5% constant currency) which with improved margins has generated 17%
adjusted operating profit growth (around 11% constant currency). Cash
generation was as expected, leaving cash reserves of £19.7 million at 31 May
2023.
Beneath the headlines, trading has been mixed across segments. Stronger
demand in aerospace and petrochemical markets is supporting both the Metal
Melt and Aerospace & Industrial divisions; and new products, along with
steady demand for water quality assurance, are responsible for the growth in
Seal Analytical. This is balanced by the anticipated de-stocking in
laboratory and industrial consumable markets with supply chain issues now
mainly resolved. Inflation in wages and services remains a concern but raw
material cost pressure is less acute than was the case twelve months ago.
The Group order book was at record levels for most of the period, and remains
high at the start of the second half, but again the detail on a
market-by-market basis is more nuanced. Lead times which were stretched in
2022 have started to return to more normal levels in 2023 and while this is
advantageous in terms of customer service, and will benefit inventory turns in
the second half, it makes near-term forecasting in these markets difficult.
The Group continues its consistent investment programme. In addition to the
Ratiolab acquisition which we hope to close in the second half, investments
have been made in productivity and margin enhancements.
Financial summary
H1 2023 H1 2022 Growth
£m £m %
Revenue 90.6 82.3 10
Operating profit 11.7 10.1 16
Adjusted operating profit* 12.2 10.4 17
Profit before tax 11.2 9.5 18
Adjusted profit before tax* 11.8 9.8 20
Pence Pence
Earnings per share 19.3 16.1 20
Adjusted earnings per share* 20.3 16.6 22
£m £m
Cash generated from operations 8.2 7.2
Net cash (excluding lease liabilities) 19.7 12.2
*See notes 1, 2 and 3 for definitions and reconciliations.
Strategy and purpose
Porvair's strategy and purpose has remained consistent for over 19 years, a
period that now encompasses two recessions and a pandemic. This longer-term
growth record gives the Board confidence in the Group's capabilities and is
the basis for capital allocation and planning decisions.
The Group's record for growth, cash generation and investment is:
5 years 10 years 15 years
CAGR* CAGR* CAGR*
Revenue growth 8% 9% 9%
Earnings per share growth 10% 12% 12%
Adjusted earnings per share growth 13% 13% 12%
£m £m £m
Cash from operations 94.1 158.3 194.9
Investment in acquisitions and capital expenditure 40.8 81.5 97.0
* Compound annual growth rate
Strategic statement and business model
Porvair's strategic purpose is the development of specialist filtration,
laboratory and environmental technology businesses for the benefit of all
stakeholders. Principal measures of success include consistent earnings
growth and selected ESG measures. The Group publishes a full ESG report at
the time of the annual Final Results.
The Group is positioned to benefit from global trends: tightening
environmental regulations; growth in analytical science; the need for clean
water; carbon-efficient transportation; the replacement of plastic and steel
by aluminium; and the drive for manufacturing process quality and efficiency.
Porvair businesses have certain key characteristics in common:
· Specialist design, engineering or commercial 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 and must perform to a given specification.
Orders are won by offering the best technical solutions or commercial service
at an acceptable cost. Technical expertise is necessary in all markets
served. New products are often adaptations of existing designs with
attributes validated in our own test and measurement laboratories.
Experience in specific markets and 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; and
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 long-term growth drivers;
· Our products typically reduce emissions or 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; 18% in Asia; 20% in
Continental Europe; 10% 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:
56% of revenue was manufactured in the US; 27% in the UK; 14% in Continental
Europe; and 3% in China; and
· 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.
Environmental, Social and Governance ('ESG')
The Board understands that responsible 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 safety and reliability. Nuclear filters confine fissile
materials. Metal Melt Quality filters reduce waste and help improve the
strength to weight ratio of metal components.
A full ESG report was published in February 2023 setting out:
· Porvair's ESG management framework, goals and TCFD reporting;
· How climate change and a net zero carbon future might affect
markets served by the Group;
· ESG metrics and results; and
· How the Group has acted for the benefits of its stakeholders in
2022.
This ESG report will be updated in February 2024.
Divisional review
Aerospace & Industrial
H1 2023 H1 2022 Growth
£m £m %
Revenue 36.5 30.7 19
Operating profit 5.1 2.9 76
Adjusted operating profit* 5.4 3.1 74
*See notes 1 and 2 for definitions and reconciliations.
The Aerospace & Industrial division designs and manufactures a wide range
of specialist filtration products, demand for which is driven by customers
seeking better engineered, cleaner, safer or more efficient operations.
Differentiation is achieved through design engineering; the development of
intellectual property; quality accreditations; and technical customer service.
Revenue in the period increased by 19%. Better aerospace orders supported an
increase in output and margins benefitted from productivity investments made
in recent years. Royal Dahlman, based in Holland and mainly serving the
petrochemical market with emissions control filters, is having a much better
year supported by orders through our Indian engineering team. In the US,
industrial consumable demand is lower, notably in microelectronics where
de-stocking is affecting near-term demand. Acquired in March, HRW expands
the machining and product design skills of our facility in Idaho, and this
will help to support microelectronic margins over the balance of the year.
Laboratory
H1 2023 H1 2022 Growth
£m £m %
Revenue 29.1 30.8 (6)
Operating profit 4.7 5.9 (20)
Adjusted operating profit* 4.9 6.1 (20)
*See notes 1 and 2 for definitions and reconciliations.
The Laboratory division has two operating businesses: Porvair Sciences
(including JGF Finneran and Kbio) and Seal Analytical.
· Porvair Sciences manufactures laboratory filters, small
instruments and associated consumables. Differentiation is achieved through
proprietary manufacturing capabilities; filtration media; and technical
customer service.
· 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 and technical customer service.
After several years of robust growth, revenues in the Laboratory division fell
6% in the period.
Seal Analytical had another strong half, supported by demand for both their
new AQ700 instrument and associated automation devices. De-stocking of
laboratory consumables from the second quarter affected Porvair Sciences,
where lead-times have now fallen to more normal levels. This helps levels of
customer service and inventory turns, but challenges manufacturing efficiency.
In the plants affected, cost-reduction programmes have been undertaken to
balance changing order patterns.
As outlined in the results announcement in January, the Board anticipated this
de-stocking cycle and does not see any fundamental changes in the underlying
growth drivers of the Laboratory division, in which investment continues.
The acquisition of Ratiolab was announced in May, subject to regulatory
approval. Ratiolab GmbH, located outside Frankfurt, distributes a wide range
of laboratory consumables in Europe and the Middle East, offering technical
customer service to a wide range of customers, only some of which are already
served by the Group. Ratiolab Kft., located close to Budapest, manufactures
laboratory consumables in a modern and well-invested facility, the freehold of
which is included in the acquisition. Ratiolab has annual external revenues
of around €12 million. The transaction is expected to be earnings neutral
(after acquisition costs) in 2023, and earnings accretive thereafter.
The Board believes Ratiolab will fit well into the Group's Laboratory
division, offering a complementary product range and adding European
manufacturing capabilities, injection moulding expertise, new routes to market
and additional engineering and customer service capabilities.
Metal Melt Quality
H1 2023 H1 2022 Growth
£m £m %
Revenue 24.9 20.8 20
Operating profit 3.7 2.8 32
Adjusted operating profit* 3.7 2.8 32
*See notes 1 and 2 for definitions and reconciliations.
The Metal Melt Quality division manufactures filters for molten aluminium,
ductile iron and nickel-cobalt alloys. It has a well-differentiated product
range based on patented products and a promising new product pipeline.
Revenue grew by 20%, helped by further recovery of aerospace-related filters;
the switch from plastic to recyclable aluminium in beverage packaging; and the
higher proportion of aluminium used in electric and hybrid vehicles. Margins
at 15% remain ahead of their 10% - 12% target level.
The satellite manufacturing plant in China has had a strong start to the year.
Covid restrictions were lifted at the start of the period enabling staff to
return to work consistently. An increasing proportion of the filters made in
China for the Chinese market are for higher-grade metal alloys where
filtration efficiency is more important.
Alternative performance measures - profit
H1 2023 H1 2022 Growth
£m £m %
Adjusted operating profit 12.2 10.4 17
Adjusted profit before tax 11.8 9.8 20
Adjusted profit after tax 9.3 7.6 22
The Group presents alternative performance measures to enable a better
understanding of its trading performance (see note 1). Adjusted operating
profit and adjusted profit before tax exclude items that are considered
significant and where treatment as an adjusting item provides a more
consistent assessment of the Group's trading. Adjusting items comprise a
£0.4 million charge (2022: £0.3 million) for the amortisation of acquired
intangible assets, together with a £0.2 million charge (2022: £nil) for
costs incurred in relation to the acquisition of both HRW and Ratiolab (see
note 9).
Finance costs
The Group incurred a net interest charge of £0.4 million (2022: £0.6
million) which consisted of the finance cost on the pension deficit, lease
liability interest, and the unwind of discounted provisions and other
payables. The Group also incurred undrawn commitment fees on the Group's
banking facilities, though there were largely offset by interest receivable on
deposits.
Tax
The Group tax charge was £2.4 million (2022: £2.1 million), including the
tax effect of adjusting items (see note 1). The adjusted income tax expense
was £2.4 million (2022: £2.2 million), with the effective rate of income tax
on adjusted profit before tax at 21% (2022: 22%).
Earnings per share and dividends
The basic earnings per share for the period was 19.3 pence (2022: 16.1
pence). Adjusted earnings per share was 20.3 pence (2022: 16.6 pence).
The Board has declared an interim dividend of 2.0 pence (2022: 1.9 pence) per
share.
Investment
In the last five years, £40.8 million has been invested in acquisitions and
capital expenditure. In the first half of 2023, the Group invested £0.7
million on the HRW acquisition and £2.2 million on capital expenditure (2022:
£2.3 million).
Cash flow, cash and net debt
Cash generated from operations in the six months to 31 May 2023 was £8.2
million (2022: £7.2 million). The Group normally sees an outflow of working
capital in the first half of the year. Working capital increased by £5.0
million (2022: £4.9 million) in the period.
Net cash at 31 May 2023 was £19.7 million (31 May 2022: £12.2 million; 30
November 2022: £18.3 million). Lease liabilities were £11.0 million (31
May 2022: £11.5 million; 30 November 2022: £11.5 million).
Provisions and contingent liabilities
The Group has £4.4 million (31 May 2022: £4.5 million; 30 November 2022:
£4.0 million) of provisions for dilapidations and performance warranties.
The Group has outstanding performance bonds with customers at 31 May 2023 of
$nil (31 May 2022: $2.5 million; 30 November 2022: $1.0 million) and €0.2
million (31 May 2022: €0.4 million; 30 November 2022: €0.3 million).
Return on capital employed
The Group's return on capital employed was 16% (2022: 13%). Excluding the
impact of goodwill and retirement benefit obligations, the return on operating
capital employed was 37% (2022: 33%).
Outlook
This is a record set of results for the half-year and shows the Group
performing well overall, despite inconsistency of demand across markets
served. Aerospace, petrochemical and water quality markets are having a
strong year. As expected at the time of the results announcement in January,
orders in industrial and laboratory consumable segments have been lower as
they go through a de-stocking cycle and lead-times return to more normal
levels.
Looking ahead, while noting that inconsistent order patterns pose risks to
forecasting, the Board expects the Group's full year result to be ahead of
that for 2022. The aggregate Group order book, which has been at record
levels for much of 2023, remains high. Porvair's long-term earnings record
is supported by established global trends: tightening environmental
regulations; growth in analytical science; the need for clean water;
carbon-efficient transportation; the replacement of plastic and steel with
aluminium; and the drive for manufacturing process quality and efficiency.
The Board expects the momentum of this strong start to 2023 will carry
through to a satisfactory conclusion to the year and views the longer-term
with confidence.
Ben Stocks
Group Chief Executive
30 June 2023
Related parties
Other than remuneration of key management personnel, there were no related
party transactions in the six months ended 31 May 2023 (2022: 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. Further details of the Group's
risk profile analysis can be found in the Strategic Report section of the
Annual Report & Accounts for the year ended 30 November 2022.
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, revenue is subject to fluctuations which could have a
material effect on the Group's results for the balance of 2023.
Forward-looking statements
Certain statements in this interim 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 be 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
2023 2022
Note Unaudited Unaudited
Continuing operations £'000 £'000
Revenue 1,2 90,552 82,280
Cost of sales (59,924) (55,018)
Gross profit 30,628 27,262
Other operating expenses (18,975) (17,185)
Adjusted operating profit 1,2 12,226 10,412
Adjustments:
Amortisation of acquired intangible assets (370) (335)
Other acquisition-related costs (203) -
Operating profit 1,2 11,653 10,077
Finance costs (437) (566)
Profit before tax 11,216 9,511
Adjusted income tax expense (2,449) (2,202)
Adjustments:
Tax effect of adjustments to operating profit 1 82 67
Income tax expense (2,367) (2,135)
Profit for the period 8,849 7,376
Earnings per share (basic) 3 19.3p 16.1p
Earnings per share (diluted) 3 19.3p 16.1p
Adjusted earnings per share (basic) 3 20.3p 16.6p
Adjusted earnings per share (diluted) 3 20.3p 16.6p
Condensed consolidated statement of comprehensive income
For the six months ended 31 May
Six months ended 31 May
2023 2022
Unaudited Unaudited
£'000 £'000
Profit for the period 8,849 7,376
Other comprehensive income/(expense)
Items that will not be reclassified to profit and loss:
Actuarial gain in defined benefit pension plans net of 750 3,037
tax
Items that may be subsequently reclassified to profit and loss:
Exchange (loss)/gain on translation of foreign subsidiaries (2,751) 3,329
Total other comprehensive (expense)/income for the period (2,001) 6,366
Total comprehensive income for the period 6,848 13,742
The accompanying notes are an integral part of this interim financial
information.
Condensed consolidated balance sheet
As at 31 May
As at 30 November
As at 31 May
2023 2022 2022
Note Unaudited Unaudited Audited
£'000 £'000 £'000
Non-current assets
Property, plant and equipment 24,710 22,705 24,311
Right-of-use assets 9,614 10,207 10,144
Goodwill and other intangible assets 76,470 75,630 77,900
Deferred tax asset 740 342 1,046
111,534 108,884 113,401
Current assets
Inventories 32,803 28,266 30,973
Trade and other receivables 26,278 28,109 24,471
Derivative financial instruments 335 - 554
Cash and cash equivalents 19,678 15,988 18,297
79,094 72,363 74,295
Current liabilities
Trade and other payables (28,664) (28,478) (27,881)
Current tax liabilities (572) (1,246) (309)
Lease liabilities (2,046) (2,097) (2,156)
Derivative financial instruments - (269) (319)
Provisions 5 (4,028) (4,177) (3,692)
(35,310) (36,267) (34,357)
Net current assets 43,784 36,096 39,938
Non-current liabilities
Borrowings - (3,754) -
Deferred tax liability (2,698) (2,472) (2,811)
Retirement benefit obligations (6,759) (7,102) (9,816)
Other payables - (900) -
Lease liabilities (8,968) (9,395) (9,316)
Provisions 5 (345) (312) (328)
(18,770) (23,935) (22,271)
Net assets 136,548 121,045 131,068
Capital and reserves
Share capital 927 924 927
Share premium account 37,778 37,078 37,626
Cumulative translation reserve 12,702 10,986 15,453
Retained earnings 85,141 72,057 77,062
Equity attributable to owners of the parent 136,548 121,045 131,068
The interim financial information was approved by the Board of Directors on 30
June 2023 and was signed on its behalf by:
Ben
Stocks
James Mills
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
2023 Unaudited 2022 Unaudited
Note
£'000 £'000
Cash flows from operating activities
Cash generated from operations 7 8,211 7,239
Interest paid (154) (194)
Tax paid (2,057) (1,400)
Net cash generated from operating activities 6,000 5,645
Cash flows from investing activities
Interest received 39 -
Acquisition of subsidiaries (678) -
Purchase of property, plant and equipment (2,221) (2,310)
Purchase of intangible assets (30) (43)
Proceeds from sale of property, plant and equipment - 16
Net cash used in investing activities (2,890) (2,337)
Cash flows from financing activities
Proceeds from issue of ordinary shares 152 -
Purchase of Employee Benefit Trust shares (372) (406)
Decrease in borrowings 8 - (1,350)
Repayment of lease liabilities (1,259) (1,208)
Net cash used in financing activities (1,479) (2,964)
Net increase in cash and cash equivalents 8 1,631 344
Effects of exchange rate changes (250) 202
1,381 546
Cash and cash equivalents at the beginning of the period 18,297 15,442
Cash and cash equivalents at the end of the period 19,678 15,988
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 premium account Cumulative translation reserve
Share capital £'000 £'000 Retained earnings Total
£'000 £'000 equity
£'000
At 1 December 2021 924 37,078 7,657 63,287 108,946
Profit for the period - - - 7,376 7,376
Other comprehensive income - - 3,329 3,037 6,366
Total comprehensive income for the period - - 3,329 10,413 13,742
Purchase of own shares (held in trust) - - - (406) (406)
Share-based payments (net of tax) - - - 369 369
Dividends - - - (1,606) (1,606)
At 31 May 2022 924 37,078 10,986 72,057 121,045
At 1 December 2022 927 37,626 15,453 77,062 131,068
Profit for the period - - - 8,849 8,849
Other comprehensive (expense)/income - - (2,751) 750 (2,001)
Total comprehensive (expense)/income for the period
- - (2,751) 9,599 6,848
Purchase of own shares (held in trust) - - - (372) (372)
Issue of ordinary share capital - 152 - - 152
Share-based payments (net of tax) - - - 597 597
Dividends - - - (1,745) (1,745)
At 31 May 2023 927 37,778 12,702 85,141 136,548
The accompanying notes are an integral part of this interim financial
information.
Notes to the condensed interim consolidated financial information
1. Alternative performance measures
Alternative performance measures are used by the Directors and management to
monitor business performance internally and exclude certain cash and non-cash
items which they believe are not reflective of the normal course of business
of the Group. The Directors believe that disclosing such non-IFRS measures
enables a reader to isolate and evaluate the impact of such items on results
and allows for a fuller understanding of performance from year to year.
Alternative performance measures may not be directly comparable with other
similarly titled measures used by other companies.
Alternative revenue measures (unaudited)
Six months ended 31 May
2023 2022 Growth
Aerospace & Industrial £'000 £'000 %
Revenue at constant currency 34,503 29,971 15
Exchange 2,037 714
Revenue as reported 36,540 30,685 19
Laboratory
Revenue at constant currency 26,964 29,840 (10)
Exchange 2,163 935
Revenue as reported 29,127 30,775 (5)
Metal Melt Quality
Revenue at constant currency 21,655 19,355 12
Exchange 3,230 1,465
Revenue as reported 24,885 20,820 20
Group
Revenue at constant currency 83,122 79,166 5
Exchange 7,430 3,114
Revenue as reported 90,552 82,280 10
Revenue at constant currency is derived from translating overseas subsidiaries
results at budgeted fixed exchange rates. In 2023 and 2022, the rates used
were $1.40:£1 and €1.20:£1, compared with actual rates of $1.22:£1 (2022:
$1.31:£1) and €1.14:£1 (2022: €1.19:£1).
A reconciliation of the Group's adjusted performance measures to the reported
IFRS measures is presented below:
H1 2023 H1 2022
Adjusted Adjustments Reported Adjusted Adjustments Reported
£'000 £'000 £'000 £'000 £'000 £'000
Operating profit 12,226 (573) 11,653 10,412 (335) 10,077
Finance costs (437) - (437) (566) - (566)
Profit before tax 11,789 (573) 11,216 9,846 (335) 9,511
Income tax expense (2,449) 82 (2,367) (2,202) 67 (2,135)
Profit for the period 9,340 (491) 8,849 7,644 (268) 7,376
An analysis of adjusting items is given below:
2023 2022
Affecting operating profit: £'000 £'000
Amortisation of acquired intangible assets (370) (335)
Other acquisition-related costs (203) -
(573) (335)
Affecting tax:
Tax effect of adjustments to operating profit 82 67
Total adjusting items (491) (268)
Adjusted operating profit excludes:
· The amortisation of intangible assets arising on acquisition of
businesses of £0.4 million (2022: £0.3 million); and
· Other acquisition-related costs of £0.2 million (2022: £nil) in
relation to the HRW acquisition and the planned acquisition of Ratiolab (see
note 9).
2. Segmental information
The chief operating decision maker has been identified as the Board of
Directors. The Board of Directors has instructed the Group's internal
reporting to be based around differences in products and services, in order to
assess performance and allocate resources. The key profit measure used to
assess the performance of each reportable segment is adjusted operating
profit/(loss). Management has determined the operating segments based on
this reporting.
As at 31 May 2023, the Group is organised on a worldwide basis into three
operating segments:
1) Aerospace & Industrial - principally serving the aviation, and
energy and industrial markets;
2) Laboratory - principally serving the bioscience and environmental
laboratory instrument and consumables market; and
3) Metal Melt Quality - principally serving the global aluminium, North
American Free Trade Agreement (NAFTA) iron foundry and super-alloys markets.
Other Group operations' costs, assets and liabilities are included in the
"Central" division. Central costs mainly comprise Group corporate costs,
including new business development costs, some research and development costs
and general financial costs. Central assets and liabilities mainly comprise
Group retirement benefit obligations, tax assets and liabilities, cash and
borrowings.
The segment results for the period ended 31 May 2023 are as follows:
2023 - Unaudited
Aerospace & Industrial Metal Melt Quality
Laboratory Central Group
£'000 £'000 £'000 £'000 £'000
Total segment revenue 36,553 30,076 24,885 - 91,514
Inter-segment revenue (13) (949) - - (962)
Revenue 36,540 29,127 24,885 - 90,552
Adjusted operating profit/(loss)
5,359 4,898 3,715 (1,746) 12,226
Amortisation of acquired intangible assets
(217) (153) - - (370)
Other acquisition-related costs
- - - (203) (203)
Operating profit/(loss) 5,142 4,745 3,715 (1,949) 11,653
Finance costs - - - (437) (437)
Profit/(loss) before tax 5,142 4,745 3,715 (2,386) 11,216
The segment results for the period ended 31 May 2022 are as follows:
2022 - Unaudited
Aerospace & Industrial Metal Melt Quality
Laboratory Central Group
£'000 £'000 £'000 £'000 £'000
Total segment revenue 30,769 31,797 20,820 - 83,386
Inter-segment revenue (84) (1,022) - - (1,106)
Revenue 30,685 30,775 20,820 - 82,280
Adjusted operating profit/(loss)
3,091 6,064 2,782 (1,525) 10,412
Amortisation of acquired intangible assets
(182) (153) - - (335)
Operating profit/(loss) 2,909 5,911 2,782 (1,525) 10,077
Finance costs - - - (566) (566)
Profit/(loss) before tax 2,909 5,911 2,782 (2,091) 9,511
The segment assets and liabilities at 31 May 2023 are as follows:
At 31 May 2023 - Unaudited
Aerospace & Industrial Metal Melt Quality
Laboratory Central Group
£'000 £'000 £'000 £'000 £'000
Segmental assets 70,099 64,762 34,099 1,990 170,950
Cash and cash equivalents - - - 19,678 19,678
Total assets 70,099 64,762 34,099 21,668 190,628
Segmental liabilities (20,488) (13,498) (6,587) (6,748) (47,321)
Retirement benefit obligations - - - (6,759) (6,759)
Total liabilities (20,488) (13,498) (6,587) (13,507) (54,080)
The segment assets and liabilities at 31 May 2022 are as follows:
At 31 May 2022 - Unaudited
Aerospace & Industrial Metal Melt Quality
Laboratory Central Group
£'000 £'000 £'000 £'000 £'000
Segmental assets 77,124 57,114 30,777 244 165,259
Cash and cash equivalents - - - 15,988 15,988
Total assets 77,124 57,114 30,777 16,232 181,247
Segmental liabilities (20,481) (15,358) (7,015) (6,492) (49,346)
Retirement benefit obligations - - - (7,102) (7,102)
Borrowings - - - (3,754) (3,754)
Total liabilities (20,481) (15,358) (7,015) (17,348) (60,202)
The segment assets and liabilities at 30 November 2022 are as follows:
At 30 November 2022 - Audited
Aerospace & Industrial Metal Melt Quality
Laboratory Central Group
£'000 £'000 £'000 £'000 £'000
Segmental assets 68,033 63,324 36,063 1,979 169,399
Cash and cash equivalents - - - 18,297 18,297
Total assets 68,033 63,324 36,063 20,276 187,696
Segmental liabilities (21,640) (13,168) (6,893) (5,111) (46,812)
Retirement benefit obligations - - - (9,816) (9,816)
Total liabilities (21,640) (13,168) (6,893) (14,927) (56,628)
Geographical analysis
Six months ended 31 May
2023 2022
Unaudited Unaudited
Revenue By destination By origin By destination By origin
£'000 £'000 £'000 £'000
United Kingdom 8,975 24,018 8,735 25,794
Continental Europe 18,475 14,054 18,961 10,146
United States of America 43,250 49,701 37,171 43,961
Other NAFTA 2,204 - 1,734 -
South America 1,448 - 987 -
Asia 15,395 2,779 13,558 2,379
Africa 805 - 1,134 -
90,552 90,552 82,280 82,280
3. Earnings per share (EPS)
Six months ended 31 May
2023 2022
Unaudited Unaudited
As reported Earnings Weighted average number of shares Per share Earnings Weighted average number of shares Per share
Pence Pence
£'000 £'000
Profit for the period - attributable to owners of the parent
8,849 7,376
Shares in issue 46,343,604 46,201,685
Shares owned by the Employee Benefit Trust
(410,009) (289,162)
Basic EPS 8,849 45,933,595 19.3 7,376 45,912,523 16.1
Dilutive share options outstanding
- 18,087 - - 42,640 -
Diluted EPS 8,849 45,951,682 19.3 7,376 45,955,163 16.1
In addition to the above, the Group also calculates an earnings per share
based on adjusted profit as the Board believes this to be a better measure to
judge the progress of the Group, as discussed in note 1.
Six months ended 31 May
2023 2022
Unaudited Unaudited
Adjusted Earnings Weighted average number of shares Per share Earnings Weighted average number of shares Per share
Pence Pence
£'000 £'000
Profit for the period - attributable to owners of the parent
8,849 7,376
Adjusting items (note 1) 491 268
Adjusted profit -attributable to owners of the parent
9,340 7,644
Adjusted basic EPS 9,340 45,933,595 20.3 7,644 45,912,523 16.6
Adjusted diluted EPS 9,340 45,951,682 20.3 7,644 45,955,163 16.6
4. Dividends per share
Six months ended 31 May
2023 2022
Unaudited Unaudited
Per share £'000 Per share £'000
Final dividend approved 3.8p 1,745 3.5p 1,606
The final dividend approved for the year ended 30 November 2022 was paid to
shareholders on 7 June 2023.
The Directors have declared an interim dividend of 2.0 pence (2022: 1.9 pence)
per share to be paid on 23 August 2023 to shareholders on the register at the
close of business on 21 July 2023; the ex-dividend date is 20 July 2023.
5. Provisions
Dilapidations Warranty Total
£'000 £'000 £'000
At 1 December 2022 328 3,692 4,020
Additional charge in period - 428 428
Release of provision - (79) (79)
Unwinding of discount 17 - 17
Exchange - (13) (13)
At 31 May 2023 345 4,028 4,373
Provisions arise from potential claims on major contracts, sale warranties,
and discounted dilapidations for leased property. Matters that could affect
the timing, quantum and extent to which provisions are utilised or released,
include the impact of any remedial work, claims against outstanding
performance bonds, and the demonstrated life of the filtration equipment
installed.
6. Contingent liabilities
At 31 May 2023, the Group has performance bonds totalling $nil and €0.2
million (30 November 2022: US$1.0 million and €0.3 million). The uncalled
performance bonds are expected to be called or released no later than December
2024.
7. Cash generated from operations
Six months ended 31 May
2023 2022
Unaudited Unaudited
£'000 £'000
Operating profit 11,653 10,077
Adjustments for:
Fair value movement of derivatives through profit and loss (100) 249
Share-based payments 552 387
Depreciation of property, plant and equipment and amortisation of intangibles
2,127 1,862
Depreciation of right-of-use assets 1,124 1,098
Loss on disposal of property, plant and equipment - 23
Operating cash flows before movement in working capital 15,356 13,696
Increase in inventories (2,301) (3,044)
Increase in trade and other receivables (2,313) (6,162)
(Decrease)/increase in trade and other payables (734) 4,582
Increase/(decrease) in provisions 351 (292)
Increase in working capital (4,997) (4,916)
Post employment benefits (net cash movements) (2,148) (1,541)
Cash generated from operations 8,211 7,239
8. Reconciliation of net cash flow to movement in net debt
Six months ended 31 May
2023 2022
Unaudited Unaudited
£'000 £'000
Net cash/(debt) at the beginning of the period 6,825 (2,006)
Increase in cash and cash equivalents 1,631 344
Decrease in borrowings - 1,350
Decrease in lease liabilities 348 878
Effects of exchange rate changes (140) 176
Net cash at the end of the period 8,664 742
Cash and cash equivalents 19,678 15,988
Borrowings - (3,754)
Lease liabilities (11,014) (11,492)
Net cash at the end of the period 8,664 742
9. Acquisitions
On 3 March 2023, the Group acquired certain business and assets from HRW Inc.,
a small engineering operation in Nampa, Idaho, and key supplier to the Group's
microelectronics filtration facility in Idaho. The acquisition expands
machining and product design skills to that location.
The total maximum consideration is £0.9 million; consisting of initial and
deferred and consideration. In the period since acquisition, the business
has contributed £0.1 million of adjusted operating profit to the Group
results. Had the acquisition been consolidated from 1 December 2022, the
income statement would show adjusted operating profit of £12.3 million.
The following table sets out the purchase consideration, together with the
provisional fair value of assets acquired and liabilities assumed:
Total
Purchase consideration: £'000
Initial cash consideration 668
Deferred cash consideration 200
Total purchase consideration 868
Provisional fair value of net assets acquired (below) (679)
Goodwill 189
Fair value
Provisional fair value of identifiable assets acquired and liabilities £'000
assumed:
Technology and know-how 343
Property, plant and equipment (including right-of-use assets) 538
Inventory 37
Trade and other payables (including lease liabilities) (239)
Provisional fair value of net assets acquired 679
A preliminary valuation of the identifiable intangible assets has been carried
out in the period. Acquisition-related intangible assets comprise technology
and know-how of £0.3 million.
The goodwill is attributable to non-contractual relationships, the synergies
between the business acquired and the operations of the Group, and the
potential to develop the technologies acquired. None of these meet the
criteria for recognition of intangible assets separable from goodwill. The
goodwill recognised is attributable to the Aerospace & Industrial division
and is expected to be deductible for income tax purposes.
These estimates of fair value may be adjusted in future in accordance with the
requirements of IFRS 3 Business Combinations.
On 4 May 2023, Group announced that it will acquire, subject to Hungarian
regulatory approval, 100% of the issued share capital of two businesses,
Ratiolab GmbH and Ratiolab Kft. (together "Ratiolab") as outlined in the
Divisional review above.
The direct cost of acquisitions was £0.2 million. This cost has been
charged to the income statement and is presented as an adjusting item (see
note 1).
10. Exchange rates
Exchange rates for the US dollar and Euro during the period were:
Average rate to 31 May 23 Average rate to 31 May 22 Closing rate at 31 May 23 Closing rate at 30 Nov 22
Unaudited Unaudited Unaudited Unaudited
US dollar 1.22 1.31 1.23 1.19
Euro 1.14 1.19 1.15 1.16
11. Basis of preparation
Porvair plc is a public limited company registered in the UK and listed on the
London Stock Exchange.
This unaudited condensed interim consolidated financial information for the
six months ended 31 May 2023 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 contained in UK-adopted
International Accounting Standards. The condensed interim consolidated
financial information should be read in conjunction with the annual financial
statements for the year ended 30 November 2022, which were prepared in
accordance with applicable law and UK-adopted International Accounting
Standards.
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 2022. A number of new amendments are
effective from 1 December 2022 but they do not have a material effect on the
Group's financial statements.
Taxes on income in the interim period are accrued using the tax rate that
would be applicable to expected total annual earnings.
This condensed interim consolidated financial information has been prepared on
a going concern basis under the historical cost convention, as modified by the
recognition of certain financial assets and financial liabilities (including
derivative financial instruments) at fair value through profit or loss.
The preparation of condensed interim 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 interim 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 2022.
After having made appropriate enquiries, including a review of progress
against the Group's budget for 2023, its current trading and medium-term
plans; and taking into account the banking facilities available until May
2026, 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 interim consolidated financial
information. Accordingly, they continue to adopt the going concern basis in
preparing this condensed interim consolidated financial information.
This condensed interim consolidated financial information and the comparative
figures do not constitute full accounts within the meaning of Section 434 of
the Companies Act 2006. Statutory accounts for the year ended 30 November
2022, which were approved by the Board of Directors on 27 January 2023, 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 interim
consolidated financial information has been reviewed, not audited.
The condensed interim 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 2022. 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 (http://www.porvair.com) .
Statement of directors' responsibilities
The Directors confirm that this condensed interim consolidated financial
information has been prepared in accordance with IAS 34 Interim Financial
Reporting as contained in UK-adopted International Accounting Standards, 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 interim
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.
The Directors of Porvair plc are listed in the Porvair plc Annual Report for
the year ended 30 November 2022. A list of current Directors is maintained
on the Porvair plc website, www.porvair.com (http://www.porvair.com) .
By order of the board
Ben Stocks James Mills
Group Chief Executive Group Finance Director
30 June 2023
INDEPENDENT REVIEW REPORT TO PORVAIR PLC
Conclusion
We have been engaged by Porvair plc ('the Company') to review the condensed
set of financial statements of the Company and its subsidiaries (the 'Group')
in the interim financial report for the six months ended 31 May 2023 which
comprises the condensed consolidated income statement, the condensed
consolidated statement of comprehensive income, the condensed consolidated
balance sheet, the condensed consolidated cash flow statement, the condensed
consolidated statement of changes in equity and related notes 1 to 11. We
have read the other information contained in the interim financial report and
considered whether it contains any apparent misstatements of fact or material
inconsistencies with the information in the condensed set of financial
statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the interim
financial report for the six months ended 31 May 2023 is not prepared, in all
material respects, in accordance with International Accounting Standard 34,
"Interim Financial Reporting" as contained in UK-adopted International
Accounting Standards, and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ('ISRE (UK) 2410') issued for use in
the United Kingdom. A review of interim financial information consists of
making enquiries, 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 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.
As disclosed in note 11, the annual financial statements of the Group are
prepared in accordance with UK-adopted International Accounting Standards.
The condensed set of financial statements included in this interim financial
report has been prepared in accordance with International Accounting Standard
34, "Interim Financial Reporting" as contained in UK-adopted International
Accounting Standards.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group and
the Company to cease to continue as a going concern.
Responsibilities of Directors
The interim financial report, is the responsibility of, and has been approved
by, the directors. The directors are responsible for preparing the interim
financial report in accordance with International Accounting Standard 34,
"Interim Financial Reporting" as contained in UK-adopted International
Accounting Standards and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the interim financial report, the directors are responsible for
assessing the Group's and the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's Responsibilities for the Review of the Financial Information
In reviewing the interim financial report, we are responsible for expressing
to the Company a conclusion on the condensed set of financial statements in
the interim financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim Financial
Information performed by the Independent Auditor of the Entity". Our review
work has been undertaken so that we might state to the Company those matters
we are required to state to them 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.
RSM UK Audit LLP
Chartered Accountants
25 Farringdon Street
London EC4A 4AB
30 June 2023
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