A strong and sustainable business well positioned forgrowth/media/Files/P/Porvair/... · subject to...

Porvair plc Interim Report 2017

A strong and sustainable businesswell positioned for growth

About Porvair

ifc Porvair plc Interim Report 2017

Contents

ifc About Porvair

01 Interim results

02 Operating review

06 Condensed consolidated income statement

06 Condensed consolidated statement of comprehensive income

07 Condensed consolidated balance sheet

08 Condensed consolidated cash flow statement

09 Condensed consolidated statement of changes in equity

10 Notes to the condensed half-yearly consolidated financial information

21 Statement of Directors’ responsibilities

22 Independent review report to Porvair plc

23 Shareholder information

ibc Board committees, Secretary and advisers

Porvair is a specialist filtration and environmental technology group withtwo operating divisions – Metals Filtration and Microfiltration. We haveoperations in the UK, US, Germany and China.

We focus on specialist filtration markets which have long term growthpotential of which aviation, energy and industrial process, laboratorysupplies and molten metals are the most important.

We are committed to delivering value to all our stakeholders – our customers,employees and shareholders.

Stay informedFind out more about Porvair and the latestfinancial information, results, presentations, reportsand shareholder services: www.porvair.com

Financial highlights

Positive progress:

• Revenue up 7% to £55.5 million (2016: £52.1 million). Underlying revenue at constant currency* growth was 11%.

• Profit before tax up 9% to £4.9 million(2016: £4.5 million).

• Basic earnings per share up 11% to 8.3 pence (2016: 7.5 pence).

• Net cash was £4.0 million (31 May 2016:£7.2 million; 30 November 2016: £13.6million).

• Acquisition of J. G. Finneran Associates,Inc. (“JGF”).

• Capital investment of £4.0 million in the period.

• Interim dividend increased 7% to 1.5 pence per share (2016: 1.4 pence).

*See note 14 for definition of revenue at constant currency and underlying (which excludes large projects) revenue atconstant currency.

Operating highlights

Metals Filtration division:

• Revenues up 14% (6% at constantcurrency*).

• Aluminium filtration revenue strong.

• Profits held back by start-up losses in China.

Microfiltration division:

• Revenue up 3%. Underlying revenue at constant currency* up 14%.

• Aerospace revenue up 19%.

• Seal Analytical revenue up 16%.

• Large contracts progressing as planned.

• JGF has performed well sinceacquisition.

• New manufacturing facility for SealAnalytical in USA opened on scheduleand to budget.

• Capacity investments made for aviationand bioscience in the UK.

01 Porvair plc Interim Report 2017

Interim resultsfor the six months ended 31 May 2017

Overview

Profit before tax was up 9% to £4.9 million. Earningsper share increased 11% to 8.3 pence.

Revenue was £55.5 million, an increase of 7%.Currency translation effects of a weaker Sterlingbenefited the current period reported revenues whilethe prior period included significant revenues from thelarge projects. At constant currency, excluding thelarge projects, revenue growth was 11%.

Strategic statementPorvair’s strategy has remained consistent for anumber of years. It is to generate shareholder valuethrough the development of specialist filtration andassociated environmental technology businesses,both organically and by acquisition. Such businesseshave certain key characteristics in common:

• Specialist design or engineering skills are required;

• Product use and replacement is mandated byregulation, quality accreditation or a maintenancecycle; and

• Products are often designed into a specification and will typically have long life cycles.

Over the last five years the Group has achievedrevenue growth of 55% (9% CAGR), earnings pershare growth of 108% (16% CAGR) and cash fromoperations of £62 million.

Over the same period, £33 million has been investedin capital expenditure and acquisitions. In the lasttwelve months, the Group’s after tax operating profitreturn on operating capital was 43% (2016: 47%).

Business model outlineOur customers require filtration or emission controlproducts that perform to a given specification. Wewin business by offering the best technical solutionsfor these requirements at an acceptable commercialcost. Filtration expertise is applicable across allmarkets with new products generally beingadaptations of existing designs. Experience in

particular markets or applications is valuable inbuilding customer confidence. Domain knowledge isimportant, as is deciding where to direct resources.

This leads us to:

1. Focus on markets where we see long term growth potential.

2. Look for applications where product use ismandated and replacement demand is therefore regular.

3. Make new product development a core business activity.

4. Establish geographic presence where end-markets require.

5. Invest in both organic and acquired growth.

Therefore:

• We focus on four markets: aviation; energy andindustrial; laboratories; and molten metals. All haveclear structural growth drivers.

• Our products are specialist in nature and typicallyprotect costly or complex downstream systems. As a result they are replaced regularly. A highproportion of our annual revenue is from repeatorders.

• We prioritise new product development in order togenerate growth rates in excess of the underlyingmarket. Where possible we build robust intellectualproperty around our product developments. About30% of our revenue is derived from patentprotected products.

• Our geographic presence follows the markets weserve. 51% of revenue is in the Americas, whereaviation and metals filtration are strong. 21% ofrevenue is in Asia, where sales into water analysismarkets are growing and the demand forgasification plants is strongest.

• We aim to meet dividend and investment needsfrom free cash flow and modest borrowing facilities.In recent years we have expanded manufacturingcapacity in the UK, Germany, US and China andmade several acquisitions. All investments aresubject to a hurdle rate analysis based on strategicand financial priorities.

Operating review


2017 2016£m £m Growth %

Revenue 55.5 52.1 7

Profit before tax 4.9 4.5 9

Earnings per share 8.3p 7.5p 11

Net cash 4.0 7.2

Operating structure• The Group has two divisions. The Microfiltration

division serves the aviation, energy and industrial,and laboratory markets. The Metals Filtrationdivision focuses on filtration of molten metals,principally aluminium.

• The acquisition of JGF has increased the Group’sactivities in the laboratory sector, and the Board isconsidering managing and reporting these activitiesin a separate segment in the 2018 financial year.

• The Group has plants in the US, UK, Germany andChina. 52% of revenue is manufactured in the US,36% in the UK, 9% in Germany and 3% in China.

Investment and future developmentSince the start of 2014, £27 million has been investedin acquisitions and capacity expansion. In the firsthalf of 2017:

• JGF was acquired at the start of April, and hasmade an excellent start. Investments will be madeto expand the JGF manufacturing footprint;upgrade certain parts of the plant; introduce newmachine capacity; and bring in componentmanufacture for other parts of the Group.

• A further potential acquisition progressed throughdue diligence in the period, although ultimately theBoard decided not to complete. Costs associatedwith it have been written off in these results.

• A new facility for Seal Analytical in the US opened in December 2016, creating additional capacity formanufacturing and product development for thiswater analysis and laboratory supplies business.

• A new machining cell for aviation filter manufacturewas commissioned in the UK to meet growingdemand in that market. This will allow us to offershorter lead times and better quality control.

• New equipment has been ordered to support themanufacture of our bioscience filtration materials.This will be commissioned in the second half of the year.

New product development remains core to Porvair’sstrategy with incremental range extensions andincreasing product differentiation being priorities. In the first half:

• A new inerting filter for commercial aviation wasqualified and went into production.

• Seal Analytical introduced one new platform andtwo model upgrades in March. These will gothrough beta testing during the rest of the year withfirst commercial orders expected in late 2017.

• Extensions continue to be added to themicroelectronics filter range acquired with TEM Filter Company (“TEM”) in 2015. This acquisitioncontinues to trade well.

• Several smaller product introductions in nuclear, inkjet and bioscience filtration are in final validation andwill move into production later in the year.

The general pipeline of new products for 2018 lookspromising.

Divisional review – Metals Filtration

Revenue from the Metals Filtration division increasedby 14% to £19.1 million (6% at constant currency).Sales in the US have started the year well and sales into the global aluminium market have beenparticularly strong. We continue to innovate andintroduce new products and were pleased to receivethe American Ceramic Society medal for innovation in foundry filtration in the period.

Operating profit fell 36% due to continuing losses inthe Chinese start-up. We expect these to diminish asthe plant builds its revenues and we implement ourplans to gain production efficiencies, but progress isslower than we would like. There is plenty of evidencethat our proposition of a more efficient filter with a lessdamaging environmental footprint is gaining traction,but in the price conscious Chinese market, sticking to this value proposition is a challenge. As Chinesealuminium producers raise their quality requirementsbetter quality filtration is expected to be needed. Our patented filters demonstrably outperform thecompetition, notably in higher grade alloys. We areresolved to be patient.


2017 2016£m £m Growth %

Revenue 19.1 16.8 14

Operating profit 0.8 1.2 (36)


Operating review continued

Divisional review – Microfiltration

Revenue increased by 3% to £36.4 million andoperating profits were up 6% to £5.2 million.Underlying revenue, including the first contributionfrom JGF, grew 14% in the period, offset by lowerrevenue from the large projects which was £6.2million below the prior period. Revenue in the US was ahead of the prior year.

General levels of demand remain encouraging.Aviation revenues grew 19% with orders for the latestgeneration of inerting filters starting to ship. Orders inbioscience, industrial process and microelectronicswere strong. The Group’s patented DNA filtrationtechnology will be supplied under license to a largeUS molecular biology specialist.

Large gasification projects continue to be an area of focus. Commissioning in Korea made progress as planned. The project in India is expected to begincommissioning towards the end of 2017 and the onein China in early 2018. The Indian joint venture and its contract to provide filter cleaning equipment isprogressing well.

Two months of contribution from JGF were included in these results and trading was ahead ofmanagement expectations. Integration plans aregoing well. Opportunities for cross sales are alreadyapparent from a newly combined product offeringaimed at chromatography, sample preparation andother environmental laboratory processes.

Seal Analytical had a good first half with revenues up 16%. Seal is a leading supplier of equipment and consumables to environmental laboratories. It specialises in equipment for the detection ofinorganic contamination in water. This niche marketgrows as water quality standards improve. Sealdistinguishes itself from its competitors with an activenew product development programme. It opened anew manufacturing facility in the USA in the period to accommodate growth.

Other Unallocated expensesOther Unallocated expenses, covering central costs,were lower at £0.8 million (2016: £1.4 million) largelyas a result of reversing the contract mark-to-marketprovisions set up in the second half of 2016. OtherUnallocated expenses includes £0.4 million (2016:£nil) of acquisition and potential acquisition expenses.

InterestThe Group incurred an interest charge of £0.3 million(2016: £0.3 million). £0.2 million (2016: £0.2 million)relates to the finance cost of the defined benefitpension scheme. The remainder comprises non-utilisation fees and interest on the Group’sbanking facilities.

TaxThe Group tax charge was £1.1 million (2016: £1.1million). This is an effective rate of 23% (2016: 24%),in line with the rate recorded for the full year ended30 November 2016 and higher than the UK standardcorporate tax rate because tax rates are higher onprofits made in Germany and the US.

Earnings per share and dividendsThe basic earnings per share for the period increased11% to 8.3 pence (2016: 7.5 pence).

The Board has declared an interim dividend of 1.5 pence (2016: 1.4 pence) per share, an increaseof 7%.

Cash flow and net debtCash generated from operations in the six months to 31 May 2017 was £1.6 million (2016: £2.5 million).Working capital increased in the period by £4.6mmillion (2016: £4.2 million). Working capital usuallyincreases in the first half, a trend exaggerated by thereversal of working capital benefits from advancepayments on the large projects.

Interest paid was £0.1 million (2016: £0.1 million).Tax payments were £1.3 million (2016: £0.6 million), a normal tax payment compared with the prior periodwhich benefited from a rebate.

Capital expenditure was £4.0 million (2016: £2.7million), mainly spent on two premises occupied byJGF acquired immediately post acquisition; the fit outof facilities in US for Seal Analytical; and additionalmachining capacity in the UK, as described above.


2017 2016£m £m Growth %

Revenue 36.4 35.3 3

Operating profit 5.2 4.9 6



£5.5 million (2016: £2.9 million) was spent onacquisitions. £4.8 million was paid to acquire JGFand £0.7 million was paid as the final settlement ofthe deferred consideration for TEM. As described innotes 9 and 11, further consideration for JGF is duein 2018 and 2019 up to a maximum of £4.7 million,contingent upon its performance in its first andsecond years of trading under our ownership.

Net cash at 31 May 2017 was £4.0 million (31 May2016: £7.2 million; 30 November 2016: £13.6 million).

Banking facilitiesOn 24 May 2017, the Group agreed a new five yearrevolving credit facility of €23 million (£20 million) with Barclays Bank plc and Svenska HandelsbankenAB (publ). The margin on the facility is 1.5% aboveLIBOR, a significant improvement on the previousterms. The Group also has a £2.5 million overdraftfacility provided by Barclays Bank plc.

Return on capital employedThe Group’s return on capital employed was 14%(2016: 15%). Excluding the impact of goodwill andthe pension liability the return on operating capitalemployed was 43% (2016: 47%).

Current trading and outlookPorvair has started 2017 well, with a healthy orderbook going into the second half. Organic growthcontinues to be driven by incremental new productintroductions and capacity expansion. The recentacquisition, JGF, has started well. The Group has a strong balance sheet, a promising project pipeline and sees many opportunities for further growth ahead.

Ben StocksGroup Chief Executive26 June 2017

Related partiesThere were no related party transactions in the sixmonths ended 31 May 2017 (2016: none).

Principal risks Each division considers strategic, operational andfinancial risks and identifies actions to mitigate thoserisks. These risk profiles are reviewed by the Boardand updated at least annually. The principal risks anduncertainties for the remaining six months of thefinancial year are discussed below. Further details ofthe Group’s risk profile analysis can be found in theStrategic Report section of the Annual Report for theyear ended 30 November 2016.

Although healthy at 31 May 2017, certain elements of the Group’s order position can change quickly inthe face of changing economic circumstances. TheMetals Filtration division and environmental laboratorysupplies and general industrial filtration within theMicrofiltration division all have relatively short leadtimes and order cycles and, therefore, revenues aresubject to fluctuations, which could have a materialeffect on the Group’s results for the balance of 2017.

Forward looking statementsCertain statements in this half yearly financialinformation are forward-looking. Although the Groupbelieves that the expectations reflected in theseforward-looking statements are reasonable, it cangive no assurance that these expectations will proveto have been correct. Because these statementsinvolve risks and uncertainties, actual results maydiffer materially from those expressed or implied bythese forward-looking statements.

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




Six months ended 31 May 2017 2016 Unaudited UnauditedFor the six months ended 31 May Note £’000 £’000

Revenue 1 55,538 52,060Cost of sales (37,285) (35,817)

Gross profit 18,253 16,243Other operating expenses (13,051) (11,489)

Operating profit 1 5,202 4,754Interest payable and similar charges (347) (303)

Profit before income tax 4,855 4,451Income tax expense (1,121) (1,084)

Profit for the period 3,734 3,367

Profit attributable to:Owners of the parent 3,738 3,367Non-controlling interests (4) –


Earnings per share (basic) 2 8.3p 7.5pEarnings per share (diluted) 2 8.2p 7.4p

Condensed consolidated statement of comprehensive income Six months ended 31 May 2017 2016 Unaudited Unaudited For the six months ended 31 May £’000 £’000


Other comprehensive income:Items that will not be reclassified to profit and lossActuarial losses in defined benefit pension plans net of tax (937) (442)

Items that may be subsequently reclassified to profit or lossExchange differences on translation of foreign subsidiaries (1,510) 1,727Changes in the fair value of foreign exchange contracts held as a cash flow hedge, net of tax 157 17

(1,353) 1,744

Net other comprehensive income (2,290) 1,302

Total comprehensive income for the period 1,444 4,669

Comprehensive income attributable to:Owners of the parent 1,448 4,669Non-controlling interests (4) –

Total comprehensive income for the period 1,444 4,669

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

Condensed consolidated income statement


As at As at 31 May 30 November

2017 2016 2016 Unaudited Unaudited Audited As at 31 May Note £’000 £’000 £’000

Non-current assetsProperty, plant and equipment 4 20,676 16,061 18,102Goodwill and other intangible assets 4 59,048 47,729 52,578Deferred tax asset 3,722 2,484 3,291

83,446 66,274 73,971Current assetsInventories 16,745 14,008 15,001Trade and other receivables 20,765 20,123 18,593Cash and cash equivalents 11,457 8,318 13,633

48,967 42,449 47,227Current liabilitiesTrade and other payables (27,948) (25,870) (25,873)Current tax liabilities (1,482) (1,893) (1,921)Derivative financial instruments (523) (427) (1,578)

(29,953) (28,190) (29,372)

Net current assets 19,014 14,259 17,855

Non-current liabilitiesBank loans (7,501) (1,153) –Deferred tax liability (1,745) (1,515) (1,739)Retirement benefit obligations (16,605) (12,420) (16,117)Other payables (2,324) – –Provisions for other liabilities and charges 12 (1,900) (2,556) (2,524)

(30,075) (17,644) (20,380)

Net assets 72,385 62,889 71,446

Capital and reservesShare capital 5 907 902 906Share premium account 5 35,546 35,359 35,513Cumulative translation reserve 6 9,439 3,433 10,949Retained earnings 6 26,458 23,195 24,078

Equity attributable to equity shareholders of the parent 72,350 62,889 71,446

Non-controlling interests 35 – –

Total equity 72,385 62,889 71,446

The interim financial information on pages 8 to 21 was approved by the Board of Directors on 26 June2017 and was signed on its behalf by:

Ben Stocks Chris TylerGroup Chief Executive Group Finance Director


Condensed consolidated balance sheet


Six months ended 31 May

2017 2016 Unaudited Unaudited For the six months ended 31 May Note £’000 £’000

Cash flows from operating activitiesCash generated from operations 7 1,571 2,503Interest paid (142) (80)Tax paid (1,310) (571)

Net cash generated from operating activities 119 1,852

Cash flows from investing activitiesAcquisition of subsidiaries (net of cash acquired) 11 (5,465) (2,930)Purchase of property, plant and equipment 4 (3,947) (2,623)Purchase of intangible assets 4 (65) (60)Share capital from non-controlling interests 39 –

Net cash used in investing activities (9,438) (5,613)

Cash flows from financing activitiesNet proceeds from the issue of ordinary shares 5 34 6Purchase of Employee Benefit Trust shares (145) –Increase in borrowings 8 7,325 1,113

Net cash generated from financing activities 7,214 1,119

Net decrease in cash and cash equivalents 8 (2,105) (2,642)Effects of exchange rate changes (71) 222

(2,176) (2,420)Cash and cash equivalents at the beginning of the period 13,633 10,738

Cash and cash equivalents at the end of the period 11,457 8,318


Condensed consolidated cash flow statement


Share Cumulative Share premium translation Retained

capital account reserve earnings TotalFor the six months ended 31 May (Unaudited) £’000 £’000 £’000 £’000 £’000

Balance at 1 December 2015 896 35,359 1,706 21,103 59,064

Profit for the period – – – 3,367 3,367Other comprehensive income for the period:Exchange differences on translation of foreign

subsidiaries – – 1,727 – 1,727Changes in the fair value of foreign exchange

contracts held as a cash flow hedge – – – 17 17Actuarial losses in defined benefit pension

plans net of tax – – – (442) (442)

Total comprehensive income for the period – – 1,727 2,942 4,669

Transactions with owners:Proceeds from shares issued, net of costs 6 – – – 6Employee share option schemes:

Value of employee services net of tax – – – 143 143Dividends approved as final or paid – – – (993) (993)

Balance at 31 May 2016 902 35,359 3,433 23,195 62,889

Balance at 1 December 2016 906 35,513 10,949 24,078 71,446

Profit for the period – – – 3,738 3,738Other comprehensive income for the period:Exchange differences on translation of foreign subsidiaries – – (1,510) – (1,510)

Changes in the fair value of foreign exchange contracts held as a cash flow hedge – – – 157 157

Actuarial losses in defined benefit pension plans net of tax – – – (937) (937)

Total comprehensive income for the period – – (1,510) 2,958 1,448

Transactions with owners:Consideration paid for purchase of own shares (held in trust) – – – (145) (145)

Proceeds from shares issued, net of costs 1 33 – – 34Employee share option schemes:Value of employee services net of tax – – – 655 655

Dividends approved as final or paid – – – (1,088) (1,088)

Balance at 31 May 2017 907 35,546 9,439 26,458 72,350


Condensed consolidated statement of changes in equity


1 Segmental analyses

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

As at 31 May 2017, the Group is organised on a worldwide basis into two operating segments:

1) Metals Filtration2) Microfiltration

The segment results for the period ended 31 May 2017 are as follows:

Metals Other Filtration Microfiltration unallocated GroupSix months ended 31 May 2017 – Unaudited £’000 £’000 £’000 £’000

Revenue 19,138 36,400 – 55,538

Operating profit/(loss) 761 5,213 (772) 5,202Interest payable and similar charges – – (347) (347)

Profit/(loss) before income tax 761 5,213 (1,119) 4,855Income tax expense – – (1,121) (1,121)

Profit/(loss) for the period 761 5,213 (2,240) 3,734

The segment results for the period ended 31 May 2016 are as follows:

Metals Other Filtration Microfiltration unallocated GroupSix months ended 31 May 2016 – Unaudited £’000 £’000 £’000 £’000

Revenue 16,752 35,308 – 52,060

Operating profit/(loss) 1,181 4,923 (1,350) 4,754Interest payable and similar charges – – (303) (303)

Profit/(loss) before income tax 1,181 4,923 (1,653) 4,451Income tax expense – – (1,084) (1,084)

Profit/(loss) for the period 1,181 4,923 (2,737) 3,367

Other Group operations are included in “Other unallocated”. These mainly comprise Group corporate expenditure such as head office and Board costs, new business development and general financial costs.

Notes to the condensed half-yearly consolidated financial information

Notes to the condensed half-yearly consolidated financial informationcontinued


1 Segmental analyses (continued)

Segment assets and liabilities Metals Other Filtration Microfiltration unallocated GroupAt 31 May 2017 – Unaudited £’000 £’000 £’000 £’000

Segmental assets 37,147 79,967 3,842 120,956Cash and cash equivalents – – 11,457 11,457

Total assets 37,147 79,967 15,299 132,413

Segmental liabilities (4,189) (25,871) (5,862) (35,922)Retirement benefit obligations – – (16,605) (16,605)Bank overdraft and loans – – (7,501) (7,501)

Total liabilities (4,189) (25,871) (29,968) (60,028)

Metals Other Filtration Microfiltration unallocated GroupAt 31 May 2016 – Unaudited £’000 £’000 £’000 £’000


Total assets 30,595 65,656 12,472 108,723

Segmental liabilities (4,099) (22,521) (5,641) (32,261)Retirement benefit obligations – – (12,420) (12,420)Bank overdraft and loans – – (1,153) (1,153)


Metals Other Filtration Microfiltration unallocated GroupAt 30 November 2016 – Audited £’000 £’000 £’000 £’000


Total assets 36,683 65,762 18,753 121,198

Segmental liabilities (4,650) (22,565) (6,420) (33,635)Retirement benefit obligations – – (16,117) (16,117)




1 Segmental analyses (continued)

Geographical analysis

Revenue Six months ended 31 May

2017 2016 Unaudited Unaudited

By destination By origin By destination By origin £’000 £’000 £’000 £’000

United Kingdom 7,514 18,362 8,114 23,049Continental Europe 7,232 5,245 7,153 4,309United States of America 24,071 30,400 18,405 23,624Other NAFTA 4,747 – 3,913 South America 596 – 644 –Asia 10,772 1,531 13,145 1,078Africa 606 – 686 –

55,538 55,538 52,060 52,060

2 Earnings per share Six months ended 31 May


Weighted Weighted average Per share average Per share Earnings number amount Earnings number amount £’000 of shares Pence £’000 of shares Pence

Basic EPS – Earnings attributable to ordinary shareholders 3,738 3,367

Shares in issue 45,325,567 45,032,387Shares owned by the Employee Benefit Trust (17,280) –

Basic earnings 3,738 45,308,287 8.3 3,367 45,032,387 7.5Effect of dilutive securities – share options – 322,906 (0.1) – 165,612 (0.1)

Diluted EPS 3,738 45,631,193 8.2 3,367 45,197,999 7.4

3 Dividends per share Six months ended 31 May


Per share £’000 Per share £’000

Final dividend approved 2.4p 1,088 2.2p 993

The final dividend approved for the year ended 30 November 2016 was paid to shareholders on2 June 2017.

The Directors have declared an interim dividend of 1.5 pence (2016: 1.4 pence) per share to be paid on 1 September 2017 to shareholders on the register at the close of business on 28 July 2017. The ex-dividend date for the shares is 27 July 2017.



4 Property, plant and equipment and goodwill and other intangible assets Goodwill and Property, other plant and intangible equipment assets TotalSix months ended 31 May 2017 – Unaudited £’000 £’000 £’000

Opening net book amount at 1 December 2016 18,102 52,578 70,680Additions 3,947 65 4,012Acquisition 324 7,843 8,167Depreciation and amortisation (1,306) (214) (1,520)Exchange movements (391) (1,224) (1,615)

Closing net book amount at 31 May 2017 20,676 59,048 79,724

Goodwill and Property, other plant and intangible equipment assets TotalSix months ended 31 May 2016 – Unaudited £’000 £’000 £’000

Opening net book amount at 1 December 2015 14,216 43,547 57,763Additions 2,623 60 2,683Disposals 44 3,114 3,158Depreciation and amortisation (1,044) (189) (1,233)Exchange movements 222 1,197 1,419

Closing net book amount at 31 May 2016 16,061 47,729 63,790

5 Share capital and premium Share Number of Ordinary premium shares shares account Total (thousands) Unaudited Unaudited Unaudited £’000 £’000 £’000

At 1 December 2015 44,824 896 35,359 36,255Employee share options schemes:Exercise of options under share option schemes 308 6 – 6

At 31 May 2016 45,132 902 35,359 36,261

At 1 December 2016 45,308 906 35,513 36,419Employee share options schemes:Exercise of options under share option schemes 36 1 33 34

At 31 May 2017 45,344 907 35,546 36,453

The authorised number of ordinary shares is 75 million (2016: 75 million) shares with a par value of2.0 pence (2016: 2.0 pence) per share. All issued shares are fully paid. 36,000 (2016: 308,200) ordinaryshares of 2p each were issued in the period on the exercise of employee share options for a cash consideration of £33,000 (2016: £6,000). The weighted average share price at the date of exercise of theoptions was 491 pence (2016: 288 pence).

The Group uses an Employee Benefit Trust to purchase shares in the Company to satisfy entitlementsunder the Group’s long term incentive plan. During the period, the Group purchased 30,000 (2016: nil) ordinary shares of 2.0 pence for a consideration of £145,000 (2016: £nil)



6 Other reserves Cumulative translation Retained reserve earnings Unaudited Unaudited £’000 £’000

At 1 December 2015 1,706 21,103Profit for the period attributable to shareholders – 3,367Direct to equity:Final dividends approved – (993)Actuarial loss – (539)Tax on actuarial loss – 97Share based payments – 227Tax on share based payments – (84)Foreign exchange contract cash flow hedge – 17

Exchange differences 1,727 –

At 31 May 2016 3,433 23,195

At 1 December 2016 10,949 24,078Profit for the period attributable to shareholders – 3,738Direct to equity:Final dividends approved – (1,088)Actuarial loss – (1,129)Tax on actuarial loss – 192Share based payments – 251Tax on share based payments – 404Foreign exchange contract cash flow hedge – 157Employee Benefit Trust shares – (145)

Exchange differences (1,510) –

At 31 May 2017 9,439 26,458

7 Cash generated from operations Six months ended 31 May

2017 2016 Unaudited Unaudited £’000 £’000

Operating profit 5,202 4,754Non-cash pension charge 141 178Fair value of derivatives through profit and loss (898) 290Share based payments 251 227Depreciation and amortisation 1,520 1,233

Operating cash flows before movement in working capital 6,216 6,682

Increase in inventories (840) (1,283)Increase in trade and other receivables (1,421) (5,044)(Decrease)/increase in payables (1,760) 779(Decrease)/increase in provisions (624) 1,369

Increase in working capital (4,645) (4,179)

Cash generated from operations 1,571 2,503



8 Reconciliation of net cash flow to movement in net cash Six months ended 31 May

2017 2016 Unaudited Unaudited £’000 £’000

Net decrease in cash and cash equivalents (2,105) (2,642)Effects of exchange rate changes 220 182Increase in borrowings (7,325) (1,113)Borrowings acquired with acquired subsidiaries (467) –Net cash at the beginning of the period 13,633 10,738

Net cash at the end of the period 3,956 7,165

9 Acquisition

On 4 April 2017 the Group, through its subsidiary Porvair Corporation, purchased the share capital ofJ. G. Finneran Associates, Inc. (“JGF”). The trade is the design and manufacture of products for the globalchromatography, biotechnology and environmental laboratory communities. It is based in the USA. Thetotal consideration was US$11,951,000 (£9,602,000); US$5,951,000 (£4,781,000) of this was paid on4 April 2017, with the balance being contingent and due for payment in two equal instalments, one andtwo years after the purchase date.

Immediately following the acquisition, the Group acquired the freeholds on the two premises occupied byJGF for US$2.2 million (£1.8 million).

The contingent consideration is estimated based on the forecast performance of the acquired business inits first two years of ownership by the Group. Management has forecast that payment of the maximumcontingent consideration, US$6,000,000 (£4,648,000), is the most probable outcome. A reduction in the annual operating profit by US$100,000 (£79,000), which is considered a reasonable possible alternative, wouldreduce the liability by US$375,000 from the first instalment and US$200,000 from the second instalment.

In the period since acquisition, the business has contributed US$1,941,000 (£1,540,000) sales andUS$281,000 (£223,000) operating profit to the Group results.

Total£’000

Purchase consideration:Cash paid 4,781Contingent consideration 4,821

Total purchase consideration 9,602Fair value of net assets acquired (2,391)

Goodwill 7,211



9 Acquisition (continued)

Recognised amounts of identifiable assets acquired and liabilities assumedFair value

£’000

Property plant and equipment 324Patents 190Customer list 201Non-compete agreement 241Inventory 1,129Trade receivables 1,069Other working capital (net) (296)Loan (467)

Net assets acquired 2,391

Purchase consideration settled in cash 4,781

Cash outflow on acquisition 4,781

The goodwill attributable to the acquisition relates non-contractual relationships, the synergies between thebusiness acquired and the existing operations of the Group and the potential to develop the acquired technologies, which do not meet the criteria for capitalisation as intangible assets. The goodwill recognisedis attributable to the Microfiltration division. The purchase is accounted for as an acquisition.

JGF was acquired close to the period end, as a consequence the accounting entries are deemed provisional. The accounting entries for the business combination will be finalised as permitted by IFRS3para 45 prior to the approval of the Annual Report for the financial year ending 30 November 2017.

The direct costs of acquisition, which have been charged to the income statement, were US$459,000(£364,000). A further £64,000 was incurred on other potential acquisitions that did not proceed pastdue diligence.

10 Contingent liabilities

At 31 May 2017, the Group has advanced payment bonds totalling US$ nil (30 November 2016:US$5,024,000) relating to monies received in advance on contracts. The Group has performance bondstotalling US$7,179,000 (30 November 2016: US$7,179,000). The bonds are released after a warranty period and in any event no later than November 2019.

11 Fair value estimation

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, cash flowinterest rate risk and price risk), credit risk and liquidity risk. The condensed half-yearly consolidated financial information does not include all financial risk management information and disclosures required inthe annual financial statements; it should be read in conjunction with the Group’s annual financial statements as at 30 November 2016. There have been no changes in the risk management processes or in any risk management policies since the year end.

Compared to the year end, there was no material change in the contractual undiscounted cash out flowsfor financial liabilities with the exception of bank overdraft and loans of £7.5 million, which are due in 2022.

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



11 Fair value estimation (continued)

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

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

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

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

Level 1 Level 2 Level 3 Total £’000 £’000 £’000 £’000

Financial liabilities at fair value through profit or loss:– Trading derivatives – (523) – (523)

Contingent consideration – – (4,648) (4,648)

At 31 May 2017 – (523) (4,648) (5,171)

Financial liabilities at fair value through profit or loss:– Trading derivatives – (1,421) – (1,421)

Deferred consideration – – (696) (696)Foreign exchange contracts used for hedging – (157) – (157)

At 30 November 2016 – (1,578) (696) (2,274)

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

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

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

J. G. Finneran TEM Filter Associates, Inc. Company Total £’000 £’000 £’000

At 1 December 2016 – (696) (696)Purchase consideration additions in the period (9,602) – (9,602)Cash paid in the period 4,781 684 5,465Recognised in the income statement – (20) (20)Foreign exchange movement 173 32 205

At 31 May 2017 (4,648) – (4,648)



11 Fair value estimation (continued) Fiber TEM Filter Ceramics Company Total £’000 £’000 £’000

At 1 December 2015 (56) – (56)Purchase consideration additions in the period – (3,377) (3,377)Cash paid in the period 50 2,880 2,930Recognised in the income statement 7 – 7Foreign exchange movement (1) (18) (19)

At 31 May 2016 – (515) (515)

Details regarding the valuation and sensitivity of the contingent consideration are disclosed in Note 9.

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

12 Provisions for other liabilities and charges Dilapidations Warranty Total £’000 £’000 £’000

At 1 December 2016 164 2,360 2,524Charged to/(released from) the consolidated income statement:– Unwinding of discount 7 – 7– Warranty – (600) (600)

Utilised:– Warranty – (31) (31)

At 31 May 2017 171 1,729 1,900

The provisions, all of which are non-current, arise from a discounted dilapidations provision for leased property, which is expected to be utilised in 2023, and sale warranties, which are utilisable before 2020.

13 Exchange rates

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

Average rate to Average rate to Closing rate at Closing rate at 31 May 17 31 May 16 31 May 17 30 Nov 16 Unaudited Unaudited Unaudited Unaudited

US dollar 1.26 1.45 1.29 1.25Euro 1.17 1.32 1.15 1.18



14 Alternative performance measures – Underlying revenue at constant currency estimation 2017 2016 Growth £m £m %

Metals FiltrationRevenue at constant currency* 17.2 16.3 6Exchange 1.9 0.5

Revenue as reported 19.1 16.8 14

MicrofiltrationUnderlying revenue at constant currency* 34.8 30.5 14Large projects 0.2 6.4Exchange 1.4 (1.6)


GroupUnderlying revenue at constant currency* 52.0 46.8 11Large projects 0.2 6.4Exchange 3.3 (1.1)


*Revenue at constant currency is based upon retranslating the overseas subsidiaries at fixed exchangerates in both years of US$1.4:£ and €1.2:£. Large projects are the four large gasification and nuclear remediation projects that the Group is currently completing.

15 Seasonality

The results for the six months ended 31 May 2017 are impacted by a lower number of working days in thefirst six months of the year than in the second half of the year.

16 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 May2017 has been prepared in accordance with the Disclosure and Transparency Rules (‘DTR’) of the FinancialConduct Authority and with IAS 34, ‘Interim financial reporting’ as adopted by the European Union. Thecondensed half-yearly consolidated financial information should be read in conjunction with the annual financial statements for the year ended 30 November 2016, which have been prepared in accordance withIFRSs as adopted by the European Union.

The accounting policies adopted are consistent with those of the annual financial statements for the yearended 30 November 2016, as described in those financial statements. A number of amendments to IFRSsbecame effective for the financial year beginning 1 December 2016. However, the Group did not have tochange its accounting policies or make material retrospective adjustments as a result of adopting thesenew standards.

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

This condensed half-yearly consolidated financial information has been prepared on a going concern basisunder 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.



16 Basis of preparation (continued)

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 reportedamounts of assets and liabilities at the date of the condensed half-yearly consolidated financial informationand the reported amounts of revenues and expenses during the reporting period. Although these estimatesare based on management’s best knowledge of the amount, event or actions, actual results may ultimatelydiffer 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 ofestimation uncertainty were the same as those applied to the consolidated financial statements for the yearended 30 November 2016, with the exception of changes in estimates that are required in determining theprovision for income taxes.

After having made appropriate enquiries, including a review of progress against the Group’s budget for2017, its medium term plans and taking into account the banking facilities available until January 2019, theDirectors have a reasonable expectation that the Group has adequate resources to continue in operationalexistence for at least twelve months from the date of approval of the condensed half yearly consolidated financial information. Accordingly, they continue to adopt the going concern basis in preparing this condensed half-yearly consolidated financial information.

This condensed half-yearly consolidated financial information and the comparative figures does not constitute full accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accountsfor the year ended 30 November 2016, which were approved by the Board of Directors on 26 January2017, and which include an unqualified audit report, no emphasis of matter paragraph and no statementsunder 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 managementinformation and disclosures required in the annual financial statements; it should be read in conjunctionwith the Group’s annual financial statements for the year ended 30 November 2016. There have been nochanges 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.

The Directors confirm that this condensed half-yearly consolidated financial information has beenprepared in accordance with IAS 34 as adopted by the European Union and that the interimmanagement 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 impacton the condensed half-yearly consolidated financial information and a description of the principal risksand 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 therelated 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 November2016. A list of current Directors is maintained on the Porvair plc website www.porvair.com.

By order of the Board

Ben StocksGroup Chief Executive

Chris TylerGroup Finance Director

26 June 2017

Statement of Directors’ responsibilities


We have been engaged by the company to reviewthe condensed set of financial statements in the half-yearly financial report for the six months ended31 May 2017 which comprises the condensedconsolidated income statement, condensedconsolidated statement of comprehensive income,condensed consolidated balance sheet, condensedconsolidated cash flow statement, condensedconsolidated statement of changes in equity, andrelated notes 1 to 16. We have read the otherinformation contained in the half-yearly financial reportand considered whether it contains any apparentmisstatements or material inconsistencies with theinformation in the condensed set of financialstatements.

This report is made solely to the company inaccordance with International Standard on ReviewEngagements (UK and Ireland) 2410 “Review ofInterim Financial Information Performed by theIndependent Auditor of the Entity” issued by theAuditing Practices Board. Our work has beenundertaken so that we might state to the companythose matters we are required to state to it in anindependent review report and for no other purpose.To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions we have formed.

Directors’ responsibilitiesThe half-yearly financial report is the responsibility of, and has been approved by, the directors. Thedirectors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure andTransparency Rules of the United Kingdom’sFinancial Conduct Authority.

As disclosed in note 16, the annual financialstatements of the group are prepared in accordancewith IFRSs as adopted by the European Union. Thecondensed set of financial statements included in thishalf-yearly financial report has been prepared inaccordance with International Accounting Standard34 “Interim Financial Reporting” as adopted by theEuropean Union.

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

Scope of reviewWe conducted our review in accordance withInternational Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim FinancialInformation Performed by the Independent Auditor of the Entity” issued by the Auditing Practices Boardfor use in the United Kingdom. A review of interimfinancial information consists of making inquiries,primarily of persons responsible for financial andaccounting matters, and applying analytical and otherreview procedures. A review is substantially less inscope than an audit conducted in accordance withInternational Standards on Auditing (UK and Ireland)and consequently does not enable us to obtainassurance that we would become aware of allsignificant matters that might be identified in an audit.Accordingly, we do not express an audit opinion.

ConclusionBased on our review, nothing has come to ourattention that causes us to believe that the condensedset of financial statements in the half-yearly financialreport for the six months ended 31 May 2017 is notprepared, in all material respects, in accordance withInternational Accounting Standard 34 as adopted bythe European Union and the Disclosure andTransparency Rules of the United Kingdom’sFinancial Conduct Authority.

Deloitte LLPStatutory AuditorCambridge, United Kingdom26 June 2017


Independent review report to Porvair plc

Registrar servicesOur shareholder register is managed and administered by Capita Asset Services. Capita Asset Services should be able to help you with most questions you have in relation to your holding in Porvair plc shares.

Capita can be contacted at:

Capita Asset ServicesThe Registry34 Beckenham RoadBeckenhamKent BR3 4TU

www.capitaassetservices.com

Telephone: 0871 664 0300 (calls cost 12p a minute plus network extras, lines are open 8.30am-5.30pm Mon-Fri) (from outside the UK: +44 (0) 371 664 0300). E-mail: [email protected].

In addition, Capita offers a range of other services to shareholders including a share dealing service and a share portal to manage your holdings.

Share dealing serviceA share dealing service is available to existing shareholders to buy or sell the Company’s shares via Capita Share Dealing Services. Online and telephone dealing facilities provide an easy to access and simple to use service.

For further information on this service, or to buy or sell shares, please contact:

www.capitadeal.com – online dealing

0371 664 0445 – telephone dealing (from outside the UK: +44 (0) 371 664 0445).

email: [email protected]

Please note that the Directors of the Company are not seeking to encourage shareholders to either buy or selltheir shares. Shareholders in any doubt as to what action to take are recommended to seek financial advicefrom an independent financial adviser authorised by the Financial Services and Markets Act 2000.

Shareholder information


DirectorsBen Stocks (Group Chief Executive)Chris Tyler (Group Finance Director)Charles Matthews OBE* (Chairman)Paul Dean* (Senior Non-Executive Director)Sally Martin* (Non-Executive Director)

*denotes independent Non-Executive Director

Members of the Audit CommitteePaul Dean (Chairman)Charles MatthewsSally Martin

Members of the Remuneration CommitteeSally Martin (Chairman)Charles MatthewsPaul Dean

Members of the Nomination CommitteeCharles Matthews (Chairman)Paul DeanSally Martin

Company Secretary and registered officeChris TylerPorvair plc7 Regis PlaceBergen WayKing’s Lynn Norfolk PE30 2JN

Telephone: +44 (0) 1553 765500Fax: +44 (0) 1553 765599

www.porvair.com

Company registration number01661935

Independent auditorsDeloitte LLP Chartered Accountants and Statutory Auditors1 Station SquareCambridge CB1 2GA

Principal bankersBarclays Bank plcBarclays Commercial BankPO Box 885Mortlock HouseStation RoadHistonCambridge CB24 9DE

Registrars and transfer officeCapita Asset ServicesThe Registry34 Beckenham RoadBeckenhamKent BR3 4TU

SolicitorsTravers Smith LLP10 Snow HillLondon EC1A 2AL

StockbrokersPeel Hunt LLPMoor House120 London WallLondon EC2Y 5ET

Designed and produced by Bexon Woodhouse www.bexonwoodhouse.com

Porvair plc Interim Report 2017

Board committees, Secretary and advisers

Porvair plc7 Regis PlaceBergen WayKing’s LynnNorfolk PE30 2JN

Telephone: +44 (0)1553 765500Fax: +44 (0)1553 765599

www.porvair.com

A strong and sustainable business well positioned forgrowth/media/Files/P/Porvair/... · subject to...

Documents

Transcript of A strong and sustainable business well positioned forgrowth/media/Files/P/Porvair/... · subject to...