RNS Number : 2801R
Porvair PLC
29 June 2020
For immediate release 29 June 2020
Porvair plc
Half year results for the six months ended 31 May 2020
Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its half yearly results for the six months ended 31 May 2020.
Highlights:
· Revenue grew 2% to £73.2 million (2019: £72.0 million), 1% on a constant currency basis*.
· Operating profit increased 20% to £9.3 million (2019: £7.8 million). Adjusted operating profit* increased by 13% to £9.0 million (2019: £8.0 million).
· Profit before tax increased 19% to £8.8 million (2019: £7.4 million).
· Basic earnings per share were 13.1 pence (2019: 12.4 pence). Adjusted basic earnings per share* grew 11% to 14.3 pence (2019: 12.9 pence).
· Net cash was £1.0 million (31 May 2019: £3.2 million) after investing £2.0 million (2019: £2.8 million) in capital expenditure.
· Interim dividend maintained at 1.7 pence per share (2019: 1.7 pence).
Commenting on the outlook, Ben Stocks, Chief Executive, said:
"The outlook for the next six months is unpredictable and, as previously announced, until patterns of demand stabilise the Group has withdrawn earnings guidance. During the Covid-19 pandemic, management's primary focus has been on the wellbeing of staff, with all operations observing safety guidelines and social distancing. Management's second priority has been to prepare for recessionary conditions should they arise. Information on current trading in each division is set out in this statement.
"The near term may be challenging, but the Board remains confident that the Group is well positioned and remains resilient. We expect demand for emissions control, clean water, process efficiency and laboratory consumables to revert to normal levels as economies recover. Our balance sheet enables us to continue investing in new products, engineering skills and productivity improvements to ensure the Group recovers strongly when conditions allow."
*See notes 1, 2 and 3 for definition and calculations of alternative performance measures
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 29 June 2020 by video conference through invitation from Buchanan. An audio webcast and a copy of the presentation will be available at www.porvair.com on the day.
Operating review
H1 2020
H1 2019
Growth
£m
£m
%
Revenue
73.2
72.0
2
Operating profit
9.3
7.8
20
Adjusted operating profit*
9.0
8.0
13
Profit before tax
8.8
7.4
19
Adjusted profit before tax*
8.5
7.6
12
Pence
Pence
Earnings per share
13.1
12.4
6
Adjusted earnings per share*
14.3
12.9
11
£m
£m
Net cash and bank debt
1.0
3.2
*See notes 1, 2 and 3 for definition and calculations of alternative performance measures
Revenue growth was 2% (1% at constant currency). Operating profit increased 20% to £9.3 million. Net cash and bank debt at 31 May 2020 was £1.0 million.
Profit before tax increased by 19%, largely driven by a strong first half performance in the Aerospace and Industrial division. Adjusted earnings per share increased 11% to 14.3 pence
Covid-19 and operating summary
The direct effects of the pandemic on Group operations evolved through the period. In the early weeks, with order books at record levels, issues were mainly around supply: ensuring staff were able to work safely and amending working practices to meet safety guidelines. The plant in Hubei Province was closed for two months from February with staff retained on full pay. All other plants remained open, with some minor supply disruptions which have now been largely resolved.
As the pandemic developed, so order patterns changed. All demand in China stopped in February and March but is now recovering. Orders from academic and industrial laboratories fell, offset by increases from those dealing with diagnostics. Plants serving general industrial and automotive markets in the US and Europe saw demand reducing from late April. Aviation demand was strong in the first quarter but was lower in the final two months of the period, with shipments for the balance of the year harder to predict and expected to be at lower levels.
In anticipation of recessionary pressure, spending has been reduced across the Group. Ordinarily, a combination of overtime and temporary or subcontracted staff are used to give operational flexibility, but these arrangements are all being adjusted to amend capacity. By the end of May, 7% of Group staff had been furloughed, around one third on grounds of vulnerability and the remainder to reduce operating costs. Those affected have received full pay for up to three months. In the US, the federal Paycheck Protection Plan loan scheme will be used in June and July to maintain levels of employment. Overall staff numbers have reduced by around 10% since the start of the year.
The Group continues to undertake sensible capital expenditure, either to meet anticipated demand, increase margins or improve quality. Further expansion of clean room capacity will be added in the second half of the year, with projects to improve process automation and visual inspection continuing unchanged.
Much has been done in support of the wider fight against the pandemic. Filters and other components have been made for several of the UK consortia that developed hospital breathing apparatus. Orders for these products have been received from around the world. Demand for diagnostic kit components has increased. New sample preparation and sample automation products were launched as planned and first orders have already been received.
Nevertheless, trading in the second half is difficult to predict and such actions as are necessary will be taken to preserve the Group's financial position. Earnings guidance was withdrawn at the time of the trading update on 8 April 2020, and the Board does not consider it prudent to reinstate guidance until patterns of demand stabilise. Commentary on the current outlook for each division is given in the review below.
Immediate management priorities are firstly to safeguard the wellbeing of staff; and secondly to adjust operating activity to meet fast-changing patterns of demand and maintain balance sheet strength. Longer term, the Board has been looking at measures to ensure the Group emerges robustly from the pandemic. Group risks have been re-evaluated and changes made to asset valuations, including an impairment of the assets in the Metal Melt Quality plant in China, reducing the carrying value of these assets by £2.3 million, as described in note 1.
Over the last five years the Group has achieved revenue growth of 47% (8% CAGR), earnings per share growth of 77% (12% CAGR) and generated cash from operations of £70 million. Over the next twelve months, maintaining these rates of growth is unlikely as the recessionary effects of the pandemic work through. But a longer-term perspective continues to inform the Group's planning and investment decisions despite currently challenging conditions. While Covid-19 may adversely affect some markets over the next few years (aviation for example), it will benefit others such as diagnostic research and laboratory consumables. The Group is well set to benefit from global trends: tighter environmental regulations; growth in analytical science; the replacement of plastic by aluminium; and the drive for manufacturing process efficiency.
Strategic statement
Porvair's strategy is to generate shareholder value through the development of specialist filtration and associated environmental technology businesses, both organically and by acquisition. Such businesses have certain key characteristics in common:
· Specialist design or engineering skills are required;
· Product use and replacement is mandated by regulation, quality accreditation or a maintenance cycle; and
· Products are typically designed into a system that will have a long life-cycle.
This strategy continues to work well for the Group, which is in a position of financial strength, and able to invest in both organic and acquired growth as appropriate.
Business model outline
Our customers require filtration or emission control products that perform to a given specification. Orders are won by offering the best technical solutions for these requirements at an acceptable commercial cost. Filtration expertise is applicable across all markets, with new products often being adaptations of existing designs. Experience in specific markets or applications is valuable in building customer confidence. Domain knowledge is important, as is deciding where to direct resources.
This leads the Group to:
1. Focus on markets where we see long term growth potential.
2. Look for applications where product use is mandated and replacement demand is regular.
3. Make new product development a core business activity.
4. Establish geographic presence where end-markets require.
5. Invest in both organic and acquired growth.
Therefore:
· We focus on three operating segments: Aviation & Industrial; Laboratory; and Metal Melt Quality. All have clear structural growth drivers.
· Our products typically control emissions or protect complex downstream systems and 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: 47% of revenue was in the Americas; 25% in Asia; 17% in continental Europe; and 11% in the UK. The Group has plants in the US, UK, Germany, the Netherlands and China. In the last twelve months, 49% of revenue was manufactured in the US; 33% in the UK; 13% in Europe; and 5% 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. Our manufacturing facilities have limited emissions and we aim to reduce carbon intensity each year. 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 as well as engine and hydraulic reliability. Nuclear filters confine fissile materials. Metal Melt Quality filters reduce waste and help improve the strength to weight ratio of metal components.
Divisional review
Aerospace & Industrial
H1 2020
H1 2019
Growth
£m
£m
%
Revenue
35.7
32.1
11
Operating profit
7.5
4.1
83
Adjusted operating profit*
4.8
4.2
12
*See notes 1, 2 and 3 for definition and calculations of alternative performance measures
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; intellectual property; or quality accreditations.
Revenue increased by 11%. Demand in aerospace and US industrial started the period at record levels, however shipments reduced in the final two months of the period leading to an 8% reduction in aerospace revenue period on period. Concerns around activity linked to the 737 Max were offset by strength early in the period at Airbus and other manufacturers. Demand for gasification spares, emission control products and microelectronic filters was good. £7.0 million (2019: £7.3 million) of gasification spares were shipped in the period. Further gasification spares orders are not now likely until 2021. Royal Dahlman contributed ahead of expectations with both its petrochemical and distribution businesses trading satisfactorily. Encouraging progress was made with gasification filter development and the commissioning of the large gasification projects. Some of the provisions held by the Group against the successful outcome of this work have been used and others have been released, as outlined in notes 1 and 9.
The outlook for demand in this division is mixed, due to the impact from Covid-19. Weakness in commercial aerospace and petrochemical markets is likely to feed through to lower demand in the second half and more cost restructuring is possible. Demand for emissions control, water-related and specialist filtration products may be less volatile.
Laboratory
H1 2020
H1 2019
Growth
£m
£m
%
Revenue
19.0
20.1
(5)
Operating profit
2.8
2.9
(6)
Adjusted operating profit*
2.8
3.0
(6)
*See notes 1, 2 and 3 for definition and calculations of alternative performance measures
The Laboratory division has two operating businesses: Porvair Sciences and Seal Analytical.
· Porvair Sciences manufactures laboratory filters and associated consumables. Differentiation is achieved through proprietary manufacturing capabilities and filtration media.
· Seal Analytical is a leading supplier of instruments and consumables for environmental laboratories for which demand is driven by water quality regulations. Differentiation is achieved through active new product development.
Revenue reduced by 5% in the period with weakness from China in the first quarter followed by lower demand from academic and industrial laboratories during the second quarter. The period finished more positively with demand in China returning and Covid-19 related laboratory demand picking up. The first orders for sample preparation products launched in the period were received. The division was active in many of the UK consortia that assembled breathing apparatus for intensive care units and has seen demand for many of its Covid-19 related diagnostic components increase in recent weeks. The recent expansion of clean room manufacturing facilities in New Jersey has proved well-timed and further capacity will be added in this area over the balance of the year.
Looking forward to the second half, continued demand weakness from academic and industrial laboratories is likely, offset by steady demand in water testing and growth in diagnostic related consumables.
Metal Melt Quality
H1 2020
H1 2019
Growth
£m
£m
%
Revenue
18.6
19.8
(6)
Operating (loss)/profit
(0.1)
1.6
(107)
Adjusted operating profit*
2.3
1.6
46
*See notes 1, 2 and 3 for definition and calculations of alternative performance measures
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.
The year started strongly at record levels of margin and it is a pleasure to report that the Hubei operation made a small maiden profit in the period. Revenue in China grew 19% despite the shutdown, but US automotive, agricultural and industrial markets were all affected by Covid-19. Nonetheless, good operating efficiencies and careful cost control in the US plants meant adjusted operating profit in the division rose by 46%.
While remaining committed to the strategy of offering premium filtration products in South East Asia from our plant in China, the Group's experiences in the region over the last twelve months (including: the imposition of tariffs in 2019; the worsening geopolitical environment; and the forced plant closures of 2020) have led the Board to reconsider the risks inherent in owning Chinese assets. Following an impairment review, outlined in note 1, the Group reduced the carrying value of these assets by £2.3 million.
In current trading, US industrial demand is weak while order intake in China is steady. US auto plants are starting to re-open and there is some prospect that, while this division was early into the crisis, it may be the first to show signs of recovery. All discretionary costs have been cut and we wait to see how demand evolves in the coming weeks.
Alternative performance measures
H1 2020
H1 2019
Adjusted £'000
Adjustments £'000
Reported £'000
Adjusted £'000
Adjustments £'000
Reported £'000
Operating profit
9.0
0.3
9.3
8.0
(0.2)
7.8
Profit before income tax
8.5
0.3
8.8
7.6
(0.2)
7.4
Profit for the year
6.6
(0.6)
6.0
5.9
(0.3)
5.6
Adjusted operating profit and adjusted profit before tax exclude:
· The amortisation of intangible assets arising on acquisition of businesses was £0.3 million (2019: £0.3 million);
· A net release of £3.8 million (2019: £nil) related to the large gasification projects. Settlement of outstanding warranty issues and the cancellation of performance bonds has allowed the Group to release £5.1 million (2019: £nil) from its provisions. Related to the release, the Group has written off a £1.3 million (2019: £nil) receivable due over the next five years;
· An impairment write down of assets of £2.3 million (2019: £nil). As disclosed in note 1, the Board has undertaken a risk review of Chinese operations and taken a more prudent view of asset values based on changing geopolitical and international trade assumptions; and
· The write off of redundant fixed assets and inventory of £0.9 million (2019: £nil), principally arising in its Aerospace & Industrial division.
In the full year, the Group may incur further costs of restructuring as operations adjust to Covid-19 related levels of demand and operating requirements. More detailed disclosure of alternative performance measures is given in note 1.
Interest
The Group incurred an interest charge of £0.5 million (2019: £0.4 million). £0.2 million (2019: £0.2 million) relates to the finance cost of the defined benefit pension scheme. £0.2 million (2019: £nil) relates to the interest charge on right of use assets. The remainder comprises undrawn commitment fees and interest on the Group's banking facilities.
Tax
The Group tax charge was £2.7 million (2019: £1.7 million). The adjusted income tax expense was £2.0 million (2019: £1.7 million). The underlying rate of income tax for the period on adjusted measures was 23% (2019: 23%).
Earnings per share and dividends
The basic earnings per share for the period was 13.1 pence (2019: 12.4 pence). Adjusted earnings per share was 14.3 pence (2019: 12.9 pence).
The Board has declared an interim dividend of 1.7 pence (2019: 1.7 pence) per share.
Investment
In the last five years, £51.0 million has been invested in acquisitions and capacity expansion. The Group invested £2.0 million (2019: £2.8 million) in capital expenditure in the first half of 2020.
Cash flow and net debt
Cash generated from operations in the six months to 31 May 2020 was £1.9 million (2019: £1.4 million). Working capital increased by £11.5 million. £5.1 million results from the release of provisions described in alternative performance measures. The remaining £6.4 million (2019: £7.5 million) is the normal outflow of working capital that arises in the first half of the year.
Net cash and bank debt at 31 May 2020 was £1.0 million (31 May 2019: £3.2 million; 30 November 2019: £4.0 million). Lease liabilities were £15.0 million (2019: £nil)
Provisions, contingent liabilities and performance bonds
The Group has £4.5 million (2019: £10.7 million) of provisions for dilapidations and warranty risks. In December 2019, a $0.9 million performance bond was called by the customer, the amount was paid and charged to provisions. Subsequently progress has been made on resolving warranty risks and $5.0 million of performance bonds have lapsed. Consequently £5.1 million of provisions are no longer considered necessary and have been released.
The Group has outstanding performance bonds with customers at 31 May 2020 of $2.5 million (30 November 2019: $8.9 million) and €0.6 million ( 30 November 2019 2019: €0.6 million).
Return on capital employed
The Group's return on capital employed reduced to 13% (2019: 16%). Excluding the impact of goodwill, acquired intangible assets and the pension liability, the return on operating capital employed was 30% (2019: 46%). Adopting IFRS16 and treating the long term lease liabilities as capital employed, the retained profit for the period and the effect of a weaker sterling all increased the capital employed.
Outlook
The outlook for the next six months is unpredictable and, as previously announced, until patterns of demand stabilise the Group has withdrawn earnings guidance. During the Covid-19 pandemic, management's primary focus has been on the wellbeing of staff, with all operations observing safety guidelines and social distancing. Management's second priority has been to prepare for recessionary conditions should they arise. Information on current trading in each division is set out in this statement.
The near term may be challenging, but the Board remains confident that the Group is well positioned and remains resilient. We expect demand for emissions control, clean water, process efficiency and laboratory consumables to revert to normal levels as economies recover. Our balance sheet enables us to continue investing in new products, engineering skills and productivity improvements to ensure the Group recovers strongly when conditions allow.
Ben Stocks
Group Chief Executive
26 June 2020
Related parties
There were no related party transactions in the six months ended 31 May 2020 (2019: none).
Principal risks
Each division considers strategic, operational and financial risks and identifies actions to mitigate those risks. These risk profiles are reviewed by the Board and updated at least annually. The principal risks and uncertainties for the remaining six months of the financial year are discussed below. Further details of the Group's risk profile analysis can be found in the Strategic Report section of the Annual Report for the year ended 30 November 2019.
The risks associated with the current Covid-19 pandemic are considered in the Covid-19 section above. Certain elements of the Group's order position can change quickly in the face of changing economic circumstances. The Metal Melt Quality division, Laboratory division and general industrial filtration within the Aerospace & Industrial division all have relatively short lead times and order cycles and, therefore, revenues are subject to fluctuations, which could have a material effect on the Group's results for the balance of 2020. These effects are exacerbated by the current pandemic.
Forward looking statements
Certain statements in this half yearly financial information are forward looking. Although the Group believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.
We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Condensed consolidated income statement
For the six months ended 31 May
Six months ended 31 May
2020
2019
Note
Unaudited
Unaudited
£'000
£'000
Revenue
1,2
73,236
72,039
Cost of sales
(48,862)
(47,518)
Gross profit
24,374
24,521
Other operating expenses
(15,085)
(16,758)
Adjusted operating profit
1,2
9,039
8,018
Adjustments:
Settlement of project related warranties
3,791
-
Impairment of Chinese Metal Melt Quality assets
(2,321)
-
Write off of redundant fixed assets and inventory
(888)
-
Amortisation of acquired intangibles
(332)
(269)
Other acquisition related adjustments
-
14
Operating profit
1,2
9,289
7,763
Interest payable and similar charges
(519)
(390)
Profit before income tax
8,770
7,373
Adjusted income tax expense
1
(1,958)
(1,742)
Adjustments:
Tax effect of adjustments
(771)
-
Income tax expense
1
(2,729)
(1,742)
Profit for the period
6,041
5,631
Profit attributable to:
Owners of the parent
6,041
5,634
Non-controlling interests
-
(3)
Profit for the period
6,041
5,631
Earnings per share (basic)
3
13.1p
12.4p
Earnings per share (diluted)
3
13.1p
12.3p
Adjusted earnings per share (basic)
3
14.3p
12.9p
Adjusted earnings per share (diluted)
3
14.3p
12.8p
Condensed consolidated statement of comprehensive income
For the six months ended 31 May
Six months ended 31 May
2020 Unaudited
2019 Unaudited
£'000
£'000
Profit for the period
6,041
5,631
Other comprehensive income:
Items that will not be reclassified to profit and loss
Actuarial losses in defined benefit pension plans net of tax
(1,473)
(2,372)
Items that may be subsequently reclassified to profit or loss
Exchange differences on translation of foreign subsidiaries
3,589
757
Changes in fair value of foreign exchange contracts held as a cash flow hedge
(186)
-
3,403
757
Net other comprehensive income
1,930
(1,615)
Total comprehensive income for the period
7,971
4,016
Comprehensive income attributable to:
Owners of the parent
7,971
4,019
Non-controlling interests
-
(3)
Total comprehensive income for the period
7,971
4,016
The accompanying notes are an integral part of this interim financial information.
Condensed consolidated balance sheet
As at 31 May
As at 31 May
As at 30 November
Note
2020 Unaudited
2019 Unaudited
2019 Audited
£'000
£'000
£'000
Non-current assets
Property, plant and equipment
21,503
22,375
22,779
Right of use assets
14,171
-
-
Goodwill and other intangible assets
73,678
67,499
71,512
Deferred tax asset
2,639
2,647
2,360
Other receivable
-
-
1,048
111,991
92,521
97,699
Current assets
Inventories
24,832
22,810
23,197
Trade and other receivables
27,147
26,407
24,153
Derivative financial instruments
-
-
48
Cash and cash equivalents
11,830
8,194
12,889
63,809
57,411
60,287
Current liabilities
Trade and other payables
(23,854)
(23,739)
(25,989)
Lease liabilities
(2,057)
-
-
Current tax liabilities
(1,675)
(1,356)
(564)
Bank overdraft and loans
(1,489)
-
-
Derivative financial instruments
(608)
(43)
-
Provisions for other liabilities and charges
9
(4,259)
(10,435)
(9,526)
(33,942)
(35,573)
(36,079)
Net current assets
29,867
21,838
24,208
Non-current liabilities
Bank loans
(9,371)
(4,946)
(8,875)
Lease liabilities
(12,906)
-
-
Deferred tax liability
(2,664)
(2,148)
(2,588)
Retirement benefit obligations
(15,202)
(14,409)
(14,450)
Other payables
-
(413)
(417)
Provisions for other liabilities and charges
9
(255)
(231)
(242)
(40,398)
(22,147)
(26,572)
Net assets
101,460
92,212
95,335
Capital and reserves
Share capital
921
917
921
Share premium account
36,549
35,958
36,504
Cumulative translation reserve
12,947
11,327
9,358
Retained earnings
51,043
44,010
48,552
Equity attributable to equity shareholders of the parent
101,460
92,212
95,335
The interim financial information on pages 9 to 23 was approved by the Board of Directors on 26 June 2020 and was signed on its behalf by:
Ben Stocks Chris Tyler
Group Chief Executive Group Finance Director
The accompanying notes are an integral part of this interim financial information.
Condensed consolidated cash flow statement
For the six months ended 31 May
Six months ended 31 May
Note
2020 Unaudited
2019 Unaudited
£'000
£'000
Cash flows from operating activities
Cash generated from operations
5
1,918
1,430
Interest paid
(202)
(152)
Tax paid
(1,146)
(1,549)
Net cash generated from/(used in) operating activities
570
(271)
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)
8
-
(591)
Purchase of property, plant and equipment
(1,896)
(1,844)
Purchase of intangible assets
(59)
(330)
Net cash used in investing activities
(1,955)
(2,765)
Cash flows from financing activities
Net proceeds from the issue of ordinary shares
45
-
Purchase of Employee Benefit Trust shares
(399)
(271)
Increase/(decrease) in borrowings
6
1,448
(31)
Repayment of lease liabilities
(1,115)
-
Net cash used in financing activities
(21)
(302)
Net decrease in cash and cash equivalents
6
(1,406)
(3,338)
Effects of exchange rate changes
347
40
(1,059)
(3,298)
Cash and cash equivalents at the beginning of the period
12,889
11,492
Cash and cash equivalents at the end of the period
11,830
8,194
The accompanying notes are an integral part of this interim financial information.
Condensed consolidated statement of changes in equity
For the six months ended 31 May (Unaudited)
Share capital £'000
Share premium account £'000
Cumulative translation reserve £'000
Retained earnings £'000
Total £'000
Non-controlling interest £'000
Total £'000
Balance at 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 period
-
-
-
5,634
5,634
-
5,634
Other comprehensive income/(expense):
Exchange differences on translation of foreign subsidiaries
-
-
757
-
757
-
757
Actuarial losses in defined benefit pension plans net of tax
-
-
-
(2,372)
(2,372)
-
(2,372)
Total comprehensive income for the period
-
-
757
3,262
4,019
-
4,019
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)
-
-
-
(271)
(271)
-
(271)
Employee share option schemes:
- value of employee services net of tax
-
-
-
420
420
-
420
Dividends approved or paid
-
-
-
(1,368)
(1,368)
-
(1,368)
Total transactions with owners recognised directly in equity
-
-
-
(1,219)
(1,219)
-
(1,219)
Adjustment arising from change in non-controlling interest
-
-
-
-
-
(3)
(3)
Balance at 31 May 2019
917
35,958
11,327
44,010
92,212
-
92,212
Condensed consolidated statement of changes in equity continued
For the six months ended 31 May (Unaudited)
Share capital £'000
Share premium account £'000
Cumulative translation reserve £'000
Retained earnings £'000
Total £'000
Non-controlling interest £'000
Total £'000
Balance at 1 December 2019
921
36,504
9,358
48,552
95,335
-
95,335
Profit for the period
-
-
-
6,041
6,041
-
6,041
Other comprehensive income/(expense):
Exchange differences on translation of foreign subsidiaries
-
-
3,589
-
3,589
-
3,589
Changes in fair value of foreign exchange contracts held as a cash flow hedge
-
-
-
(186)
(186)
-
(186)
Actuarial losses in defined benefit pension plans net of tax
-
-
-
(1,473)
(1,473)
-
(1,473)
Total comprehensive income for the period
-
-
3,589
4,382
7,971
-
7,971
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)
-
-
-
(399)
(399)
-
(399)
Proceeds from shared issued, net of costs
-
45
-
-
45
-
45
Employee share option schemes:
- value of employee services net of tax
-
-
-
(20)
(20)
-
(20)
Dividends approved or paid
-
-
-
(1,472)
(1,472)
-
(1,472)
Total transactions with owners recognised directly in equity
-
45
-
(1,891)
(1,846)
-
(1,846)
Balance at 31 May 2020
921
36,549
12,947
51,043
101,460
-
101,460
The accompanying notes are an integral part of this interim financial information.
Notes to the condensed half-yearly consolidated financial information
Notes
1. Alternative performance measures
The Group uses adjusted figures as alternative performance measures in addition to those reported under IFRS, as management believe that these measures provide a useful analysis of trends in underlying performance compared with prior periods.
Alternative revenue measures
2020
2019
Growth
Aerospace & Industrial
£'000
£'000
%
Underlying revenue
27,997
31,270
(10)
Acquisitions
6,602
-
Revenue at constant currency
34,599
31,270
11
Exchange
1,113
868
Revenue as reported
35,712
32,138
11
Laboratory
Revenue at constant currency
17,871
19,017
(6)
Exchange
1,092
1,045
Revenue as reported
18,963
20,062
(5)
Metal Melt Quality
Revenue at constant currency
16,832
18,178
(7)
Exchange
1,729
1,661
Revenue as reported
18,561
19,839
(6)
Group
Underlying revenue
62,700
68,465
(8)
Acquisitions
6,602
-
Revenue at constant currency
69,302
68,465
1
Exchange
3,934
3,574
Revenue as reported
73,236
72,039
2
Revenue at constant currency is derived from translating overseas subsidiaries at budgeted fixed exchange rates. In 2020 and 2019, the rates used were $1.4:£ and €1.2:£.
Underlying revenue is revenue at constant currency adjusted for the impact of acquisitions made in the current and prior year.
1. Alternative performance measures continued
Alternative profit measures
A reconciliation of the Group's adjusted performance measures to the reported IFRS measures is presented below:
2020
2019
Adjusted £'000
Adjustments £'000
Reported £'000
Adjusted £'000
Adjustments £'000
Reported £'000
Operating profit
9,039
250
9,289
8,018
(255)
7,763
Finance costs
(519)
-
(519)
(390)
-
(390)
Profit before income tax
8,520
250
8,770
7,628
(255)
7,373
Income tax expense
(1,958)
(771)
(2,729)
(1,742)
-
(1,742)
Profit for the year
6,562
(521)
6,041
5,886
(255)
5,631
An analysis of adjusting items is given below:
2020
2019
Affecting operating profit
£'000
£'000
Settlement of project related warranties
3,791
-
Impairment of Chinese Metal Melt Quality assets
(2,321)
-
Write off of redundant fixed assets and inventory
(888)
-
Amortisation of intangible assets acquired through acquisitions
(332)
(269)
Release of contingent consideration
-
14
250
(255)
Affecting tax
Tax effect of adjustments
(771)
-
Total adjusting items
(521)
(255)
Adjusted operating profit and adjusted profit before tax exclude:
· Provision releases of £5.1 million (2019: £nil) arising from the settlement of outstanding warranty issues and the cancellation of performance bonds related to the large gasification projects. Related to the release the Group has written off a £1.3 million (2019: £nil) receivable due over the next five years.
· The impairment write down of assets of £2.3 million (2019: £nil) of the Metal Melt Quality division's operation in Hubei. The closure of the Group's plant in Hubei province for seven weeks in the early part of the year and the potential for the geopolitical situation to deteriorate in the future, has caused the Group to take a more prudent view of the long term outlook for the operation.
· A write off of redundant fixed assets and inventory of £0.9 million (2019: £nil), principally arising in its Aerospace & Industrial division.
· The amortisation of acquired intangible assets of £0.3 million (2019: 0.3 million).
2. Segmental analyses
The chief operating decision maker has been identified as the Board of Directors. The Board of Directors reviews the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on this reporting.
As at 31 May 2020, the Group is organised on a worldwide basis into three operating segments:
1) Aerospace & Industrial
2) Laboratory
3) Metal Melt Quality
The segment results for the period ended 31 May 2020 are as follows:
2020
Aerospace & Industrial
Laboratory
Metal Melt Quality
Central
Group
£'000
£'000
£'000
£'000
£'000
Total segment revenue
35,712
19,947
18,561
-
74,220
Inter-segment revenue
-
(984)
-
-
(984)
Revenue
35,712
18,963
18,561
-
73,236
Adjusted operating profit/(loss)
4,755
2,849
2,279
(844)
9,039
Settlement of project related warranties
3,791
-
-
-
3,791
Impairment of Chinese Metal Melt Quality assets
-
-
(2,321)
-
(2,321)
Write off of redundant fixed assets and inventory
(824)
-
(64)
-
(888)
Amortisation of acquired intangibles
(233)
(99)
-
-
(332)
Operating profit/(loss)
7,489
2,750
(106)
(844)
9,289
Interest payable and similar charges
-
-
-
(519)
(519)
Profit/(loss) before income tax
7,489
2,750
(106)
(1,363)
8,770
Adjusted income tax expense
-
-
-
(1,958)
(1,958)
Tax effect of adjusting items
-
-
-
(771)
(771)
Income tax expense
-
-
-
(2,729)
(2,729)
Profit/(loss) for the period
7,489
2,750
(106)
(4,092)
6,041
2. Segmental analyses continued
The segment results for the period ended 31 May 2019 are as follows:
2019
Aerospace & Industrial
Laboratory
Metal Melt Quality
Central
Group
£'000
£'000
£'000
£'000
£'000
Total segment revenue
32,145
21,193
19,841
-
73,179
Inter-segment revenue
(7)
(1,131)
(2)
-
(1,140)
Revenue
32,138
20,062
19,839
-
72,039
Adjusted operating profit/(loss)
4,241
3,047
1,564
(834)
8,018
Amortisation of acquired intangibles
(145)
(124)
-
-
(269)
Other acquisition related adjustments
-
14
-
-
14
Operating profit/(loss)
4,096
2,937
1,564
(834)
7,763
Interest payable and similar charges
-
-
-
(390)
(390)
Profit/(loss) before income tax
4,096
2,937
1,564
(1,224)
7,373
Income tax expense
-
-
-
(1,742)
(1,742)
Profit/(loss) for the period
4,096
2,937
1,564
(2,966)
5,631
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.
Segment assets and liabilities
At 31 May 2020 - Unaudited
Aerospace & Industrial
Laboratory
Metal Melt Quality
Central
Group
£'000
£'000
£'000
£'000
£'000
Segmental assets
82,270
44,022
34,763
2,915
163,970
Cash and cash equivalents
-
-
-
11,830
11,830
Total assets
82,270
44,022
34,763
14,745
175,800
Segmental liabilities
(24,521)
(12,871)
(5,862)
(5,024)
(48,278)
Retirement benefit obligations
-
-
-
(15,202)
(15,202)
Bank overdraft and loans
-
-
-
(10,860)
(10,860)
Total liabilities
(24,521)
(12,871)
(5,862)
(31,086)
(74,340)
At 31 May 2019 - Unaudited
Aerospace & Industrial
Laboratory
Metal Melt Quality
Central
Group
£'000
£'000
£'000
£'000
£'000
Segmental assets
65,154
39,247
34,536
2,801
141,738
Cash and cash equivalents
-
-
-
8,194
8,194
Total assets
65,154
39,247
34,536
10,995
149,932
Segmental liabilities
(18,044)
(10,362)
(4,470)
(5,489)
(38,365)
Retirement benefit obligations
-
-
-
(14,409)
(14,409)
Bank overdraft and loans
-
-
-
(4,946)
(4,946)
Total liabilities
(18,044)
(10,362)
(4,470)
(24,844)
(57,720)
2. Segmental analyses continued
At 30 Nov 2019 - Audited
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)
Geographical analysis
Revenue
Six months ended 31 May
2020 Unaudited
2019 Unaudited
By destination £'000
By origin £'000
By destination £'000
By origin £'000
United Kingdom
7,452
24,216
7,787
25,616
Continental Europe
12,452
11,517
9,558
5,523
United States of America
28,351
34,298
30,921
38,388
Other NAFTA
3,218
-
3,965
-
South America
1,111
-
1,041
-
Asia
20,131
3,205
18,198
2,512
Africa
521
-
569
-
73,236
73,236
72,039
72,039
3. Earnings per share
Six months ended 31 May
As reported
2020 Unaudited
2019 Unaudited
Earnings £'000
Weighted average number of shares
Per share amount Pence
Earnings £'000
Weighted average number of shares
Per share amount Pence
Basic EPS - earnings attributable to ordinary shareholders
6,041
5,634
Shares in issue
46,052,105
45,842,280
Shares owned by the Employee Benefit Trust
(103,543)
(222,874)
Basic earnings per share
6,041
45,948,562
13.1
5,634
45,619,406
12.4
Effect of dilutive securities - share options
-
74,886
-
-
288,827
(0.1)
Diluted earnings per share
6,041
46,023,448
13.1
5,634
45,908,233
12.3
3. Earnings per share continued
2020
2019
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
6,041
5,634
Adjusting items (note 1)
521
255
Adjusted earnings attributable to ordinary shareholders
6,562
5,889
Adjusted basic earnings per share
6,562
45,948,562
14.3
5,889
45,619,406
12.9
Adjusted diluted earnings per share
6,562
46,023,448
14.3
5,889
45,908,233
12.8
4. Dividends per share
Six months ended 31 May
2020
2019
Unaudited
Unaudited
Per share
£'000
Per share
£'000
Final dividend approved
3.2p
1,472
3.0p
1,368
The final dividend approved for the year ended 30 November 2019 was paid to shareholders on 5 June 2020.
The Directors have declared an interim dividend of 1.7 pence (2019: 1.7 pence) per share to be paid on 28 August 2020 to shareholders on the register at the close of business on 24 July 2020. The ex-dividend date for the shares is 23 July 2020.
5. Cash generated from operations
Six months ended 31 May
2020 Unaudited £'000
2019 Unaudited £'000
Operating profit
9,289
7,763
Post-employment benefits
(1,568)
(983)
Fair value of derivatives through profit and loss
462
43
Share based payments
(102)
238
Depreciation and amortisation of owned assets
1,959
1,778
Impairment of property plant and equipment
2,273
-
Depreciation of right of use assets
1,004
-
Loss on disposal of property, plant and equipment
67
52
Operating cash flows before movement in working capital
13,384
8,891
Increase in inventories
(960)
(2,792)
Increase in trade and other receivables
(1,376)
(3,912)
Decrease in payables
(3,920)
(10,640)
(Decrease)/increase in provisions
(5,210)
9,883
Increase in working capital
(11,466)
(7,461)
Cash generated from operations
1,918
1,430
6. Reconciliation of net cash flow to movement in net cash
Six months ended 31 May
2020 Unaudited £'000
2019 Unaudited £'000
Net cash as previously reported at 30 November
4,014
6,625
IFRS 16 transition adjustment
(15,218)
-
Net (debt)/cash at 1 December
(11,204)
6,625
Decrease in cash and cash equivalents
(1,406)
(3,338)
(Increase)/decrease in borrowings
(1,448)
31
Decrease in lease liabilities
775
-
Effects of exchange rate changes
(710)
(70)
Net (debt)/cash at the end of the period
(13,993)
3,248
Net cash and bank debt
970
3,248
Lease liabilities
(14,963)
-
Net (debt)/cash at the end of the period
(13,993)
3,248
7. Contingent liabilities
At 31 May 2020, the Group has performance bonds totalling US$2.5 million and €0.6 million (30 November 2019: US$8.5 million and €0.6 million). The bonds are released after a warranty period and in any event no later than March 2023.
8. Deferred consideration
A summary of the movements in deferred and contingent consideration on acquisitions is given below:
Rohasys BV
Total
£'000
£'000
At 1 December 2019
948
948
Recognised in the income statement:
- Unwinding discounted contingent consideration
17
17
Foreign exchange movement
53
53
At 31 May 2020
1,018
1,018
J. G. Finneran Associates, Inc.
Rohasys BV
Total
£'000
£'000
£'000
At 1 December 2018
2,351
1,541
3,892
Cash paid in the period
-
(591)
(591)
Recognised in the income statement:
- Unearned contingent consideration
-
(14)
(14)
- Unwinding discounted contingent consideration
-
46
46
Foreign exchange movement
29
(19)
10
At 31 May 2019
2,380
963
3,343
9. Provisions for other liabilities and charges
Dilapidations
Warranty
Total
£'000
£'000
£'000
At 1 December 2019
242
9,526
9,768
Charged to/(released from) the consolidated income statement:
- Unwinding of discount
13
-
13
- Warranty released
-
(5,091)
(5,091)
- Warranty charged
-
601
601
Utilised:
- Warranty
-
(777)
(777)
At 31 May 2020
255
4,259
4,514
Dilapidations
Warranty
Total
£'000
£'000
£'000
At 30 November 2018
219
506
725
Recognised under IFRS 15
-
8,187
8,187
At 1 December 2018
219
8,693
8,912
Charged to the consolidated income statement:
- Unwinding of discount
12
-
12
- Warranty
-
1,786
1,786
Utilised:
- Warranty
-
(44)
(44)
At 31 May 2019
231
10,435
10,666
The provisions arise from a discounted dilapidations provision for property, which is expected to be utilised in 2023, and sale warranties.
The warranty provision includes amounts that will be utilised or released as these contracts approach completion. Matters that could affect the timing and quantum of the utilisation of the provisions include the impact of any remedial work, claims against the outstanding performance bonds, and the demonstrated life of the filtration equipment installed. Any future residual release to the income statement would be a non-cash item.
In December 2019, a $0.9 million (£0.8 million) performance bond was called by the customer, the amount was paid and charged to provisions. Subsequently progress has been made on resolving warranty risks and $5.0 million of performance bonds have lapsed. Consequently £5.1 million of provisions are no longer considered necessary and have been released.
10. Exchange rates
Exchange rates for the US dollar and Euro during the period were:
Average rate to 31 May 20
Average rate to 31 May 19
Closing rate at 31 May 20
Closing rate at 30 Nov 19
Unaudited
Unaudited
Unaudited
Unaudited
US dollar
1.27
1.29
1.24
1.26
Euro
1.15
1.14
1.11
1.13
11. Seasonality
The results for the six months ended 31 May 2020 are impacted by a lower number of working days in the first six months of the year than in the second half of the year.
12. Basis of preparation
Porvair plc is a public limited company registered in the UK and listed on the London Stock Exchange.
This unaudited condensed half-yearly consolidated financial information for the six months ended 31 May 2020 has been prepared in accordance with the Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed half-yearly consolidated financial information should be read in conjunction with the annual financial statements for the year ended 30 November 2019, which have been prepared in accordance with IFRSs as adopted by the European Union.
12. Basis of preparation continued
Except as described below, the accounting policies applied in these interim financial statements are consistent with those applied in the Group's consolidated financial statements for the year ended 30 November 2019. The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 30 November 2020.
The Group has adopted IFRS 16 'Leases' and IFRIC 23 'Uncertainty over income tax treatments' as of 1 December 2019. IFRIC 23 has an immaterial impact on the Group. For IFRS16, the modified retrospective approach was applied on transition. Prior period comparatives have not been restated, and there was no adjustment to equity on transition.
IFRS 16 requires the capitalisation of operating leases, such as the Group's building and vehicle leases, as right of use leased assets with an offsetting financial liability. The Group has elected to measure the right of use assets at an amount equal to the lease liabilities adjusted for any prepaid or accrued lease payments that existed at the date of transition. Right of use assets and lease liabilities are presented separately in the Consolidated Balance Sheet. On transition to IFRS 16, the weighted average incremental borrowing rate used to measure lease liabilities was 2.8%, which takes advantage of the practical expedient on transition to apply a single discount rate to groups of leases with similar risk profiles. As such, a single discount rate has been applied to leases in each country in which the Group operates.
In the Consolidated Statement of Comprehensive Income the previous rental charge has been replaced with a combination of depreciation from the right of use assets and an interest charge from the lease liabilities. The effect for the six month period ended 31 May 2020 is as follows:
Six months ended 31 May 2020
£'000
Rental lease charges under previous accounting standard
1,047
Depreciation of right of use assets
(1,004)
Increase in operating profit due to IFRS 16
43
Interest charge from lease liabilities
(226)
Decrease in profit before tax due to IFRS 16
(183)
Decrease in EPS due to IFRS 16
(0.4)p
In the year of adoption, operating profit increases, but profit before tax decreases, and earnings per share is reduced. Assuming no further changes to the Group's leases, the increase in operating profit will endure, however in future years the interest charge will reduce as the discount unwinds. The long-term impact to the Group's reported profit after tax is expected to be immaterial, with a net decrease in initial years after transition which will reverse in later years as the leases in existence at transition come closer to ending.
The following is a reconciliation of total operating lease commitments at 30 November 2019 to the lease liabilities and right of use assets recognised at 1 December 2019:
As at 1 December 2019
£'000
Total operating lease commitments disclosed at 30 November 2019
14,609
Adjustments to commitments disclosures
2,252
Lease liabilities before discounting
16,861
Discounted using incremental borrowing rate
(1,643)
Lease liabilities recognised at 1 December 2019
15,218
Adjustments for prepaid rent at 30 November 2019
113
Adjustments for accrued rent at 30 November 2019
(742)
Right of use assets recognised at 1 December 2019
14,589
For the year ended 30 November 2020 there is expected to be an increase of approximately £0.1 million in operating profit comprising an increase in depreciation of £2.0 million offset by a reduction in lease expense of £2.1 million relating to the previous treatment as operating leases. Finance costs are expected to increase by £0.5 million relating to the lease liabilities recognised, resulting in an overall decrease in profit before tax of £0.4 million.
12. Basis of preparation continued
Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual earnings.
This condensed half-yearly consolidated financial information has been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of certain current assets, financial assets and financial liabilities held for trading and derivative contracts, which are held at fair value.
The preparation of condensed half-yearly consolidated financial information, in conformity with generally accepted accounting principles, requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed half-yearly consolidated financial information, and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. In preparing the condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 30 November 2019, with the exception of changes in estimates that are required in determining the provision for income taxes.
The Group has banking facilities available until May 2022. To assess the adequacy of these facilities, the Group has prepared a comprehensive model incorporating the estimated worst case impact of the Covid-19 pandemic. The model enables the Group to assess sensitivities, highlight the impact of mitigating actions and confirm the adequacy of facilities and compliance with covenants. Management has adjusted its processes to monitor demand patterns more closely and instigate cost control measures as demand fluctuates. After having made appropriate enquiries, including management's immediate and medium term Covid-19 related planning, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the condensed half yearly consolidated financial information. Accordingly, they continue to adopt the going concern basis in preparing this condensed half-yearly consolidated financial information.
This condensed half-yearly consolidated financial information and the comparative figures do not constitute full accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 November 2019, which were approved by the Board of Directors on 31 January 2020, and which include an unqualified audit report, no emphasis of matter paragraph and no statements under sections 498(2) or (3) of the Companies Act 2006, have been delivered to the Registrar of Companies. This condensed half-yearly consolidated financial information has been reviewed, not audited.
The condensed half-yearly consolidated financial information does not include all financial risk management information and disclosures required in the annual financial statements; it should be read in conjunction with the Group's annual financial statements for the year ended 30 November 2019. There have been no changes in any risk management policies since the year end.
This report will be available at Porvair plc's registered office at 7 Regis Place, Bergen Way, King's Lynn, PE30 2JN and on the Company's website, www.porvair.com.
Statement of directors' responsibilities
The Directors confirm that this condensed half-yearly consolidated financial information has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the first six months of the year, their impact on the condensed half-yearly consolidated financial information and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
· material related party transactions in the first six months of the year and any material changes in the related party transactions described in the last annual report.
The Directors of Porvair plc are listed in the Porvair plc Annual Report for the year ended 30 November 2019. A list of current Directors is maintained on the Porvair plc website, www.porvair.com.
By order of the board
Ben Stocks
Chris Tyler
Group Chief Executive
Group Finance Director
26 June 2020
INDEPENDENT REVIEW REPORT TO PORVAIR PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 May 2020 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated cash flow statement, condensed consolidated statement of changes in equity, and related notes 1 to 12. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 12, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 May 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Cambridge, United Kingdom
26 June 2020
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