Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social...

31
Porvair plc Interim Report 2020 Aerospace & Industrial | Laboratory | Metal Melt Quality

Transcript of Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social...

Page 1: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Porvair plc Interim Report 2020

Aerospace & Industrial | Laboratory | Metal Melt Quality

Page 2: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

About Porvair

ifc Porvair plc Interim Report 2020

Contents

01 Half year results

02 Operating review

08 Condensed consolidated income statement

09 Condensed consolidated statement of comprehensive income

10 Condensed consolidated balance sheet

11 Condensed consolidated cash flow statement

12 Condensed consolidated statement of changes in equity

13 Notes to the condensed half-yearly consolidated financial information

24 Statement of Directors’ responsibilities

25 Independent review report to Porvair plc

26 Shareholder information

27 Board committees, Secretary and advisers

Porvair is a specialist filtration and environmental technology group.

We focus on specialist filtration markets which have long term growth potential of which aerospace, energy and industrial process, laboratories and metal melt quality are the most important.

At the heart of what we do is filtration and engineering expertise, which enables us to solve our customers’ increasingly complex challenges across all the markets we serve. In a changing world, requirements for sustainable technology solutions drive enduring demand for our products and services.

Our strategy focuses on generating sustainable value through the development of specialist filtration and environmental technology businesses, both organically and by acquisition, for the benefit of customers, our people, shareholders and wider stakeholders.

Aerospace

Industrial

Laboratory

Metal Melt Quality

Page 3: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

01 Porvair plc Interim Report 2020

Half year 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).

*See notes 1, 2 and 3 for definition and calculations of alternative performance measures.

£8.8m (2019: £7.4m)

Profit before tax (£m)

h+19% 14.3p

(2019: 12.9p)

Adjusted basic earnings per share* (pence)

h+11% 13.1p

(2019: 12.4p)

Basic earnings per share (pence)

£73.2m (2019: £72.0m)

Revenue (£m)

h+2% £9.3m

(2019: £7.8m)

Operating profit (£m)

h+20% £9.0m

(2019: £8.0m)

Adjusted operating profit* (£m)

h+13%

h+6%

Page 4: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Overview 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 & 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

Operating review

02 Porvair plc Interim Report 2020

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.

Page 5: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

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: Aerospace & 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.

Operating review continued

03 Porvair plc Interim Report 2020

Page 6: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Operating review continued

04 Porvair plc Interim Report 2020

Divisional review – Aerospace & Industrial *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.

Divisional review – Laboratory *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.

Financial highlights

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

Financial highlights

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)

Page 7: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

05 Porvair plc Interim Report 2020

Operating review continued

Divisional review – Metal Melt Quality *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.

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%).

Financial highlights

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

Alternative performance measures H1 2020 H1 2019

Adjusted Adjustments Reported Adjusted Adjustments Reported £’000 £’000 £’000 £’000 £’000 £’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

Page 8: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Operating review continued

06 Porvair plc Interim Report 2020

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 US$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 US$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 US$2.5 million (30 November 2019: US$8.9 million) and €0.6 million (30 November 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 IFRS 16 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

Page 9: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Operating review continued

07 Porvair plc Interim Report 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.

Page 10: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Condensed consolidated income statement

08 Porvair plc Interim Report 2020

Six months ended 31 May 2020 2019 Unaudited Unaudited For the six months ended 31 May Note £’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

Page 11: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Condensed consolidated statement of comprehensive income

09 Porvair plc Interim Report 2020

Six months ended 31 May 2020 2019 Unaudited Unaudited For the six months ended 31 May £’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.

Page 12: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Condensed consolidated balance sheet

10 Porvair plc Interim Report 2020

As at As at 31 May 30 November 2020 2019 2019 Unaudited Unaudited Audited As at 31 May Note £’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 8 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.

Page 13: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Condensed consolidated cash flow statement

11 Porvair plc Interim Report 2020

Six months ended 31 May 2020 2019 Unaudited Unaudited For the six months ended 31 May Note £’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.

Page 14: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Condensed consolidated statement of changes in equity

12 Porvair plc Interim Report 2020

Share Cumulative Non- Share premium translation Retained controlling capital account reserve earnings Total interest Total For the six months ended 31 May (Unaudited) £’000 £’000 £’000 £’000 £’000 £’000 £’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

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 shares 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.

Page 15: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information

13 Porvair plc Interim Report 2020

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 US$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.

Page 16: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

14 Porvair plc Interim Report 2020

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 Adjustments Reported Adjusted Adjustments Reported £’000 £’000 £’000 £’000 £’000 £’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).

Page 17: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

15 Porvair plc Interim Report 2020

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:

Aerospace Metal Melt & Industrial Laboratory Quality Central Group 2020 £’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

Page 18: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

16 Porvair plc Interim Report 2020

2 Segmental analyses (continued)

The segment results for the period ended 31 May 2019 are as follows: Aerospace Metal Melt & Industrial Laboratory Quality Central Group 2019 £’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 Aerospace Metal Melt & Industrial Laboratory Quality Central Group At 31 May 2020 – Unaudited £’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)

Aerospace Metal Melt & Industrial Laboratory Quality Central Group At 31 May 2019 – Unaudited £’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)

Page 19: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

17 Porvair plc Interim Report 2020

2 Segmental analyses (continued) Aerospace Metal Melt & Industrial Laboratory Quality Central Group At 30 Nov 2019 – Audited £’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 2019 Unaudited Unaudited By destination By origin By destination By origin £’000 £’000 £’000 £’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 As reported Six months ended 31 May 2020 2019 Unaudited Unaudited 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 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

Page 20: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

18 Porvair plc Interim Report 2020

3 Earnings per share (continued) Adjusted 2020 2019 Weighted Weighted average Per share average Per share Earnings number amount Earnings number amount £’000 of shares Pence £’000 of shares 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.

Page 21: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

19 Porvair plc Interim Report 2020

5 Cash generated from operations Six months ended 31 May 2020 2019 Unaudited Unaudited £’000 £’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 2019 Unaudited Unaudited £’000 £’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

Page 22: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

20 Porvair plc Interim Report 2020

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

Page 23: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

21 Porvair plc Interim Report 2020

9 Provisions for other liabilities and charges (continued)

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 US$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 US$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 Average rate to Closing rate at Closing rate at 31 May 20 31 May 19 31 May 20 30 Nov 19 Unaudited Unaudited Unaudited Unaudited

US dollar 1.27 1.29 1.24 1.29 Euro 1.15 1.14 1.11 1.17

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.

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.

Page 24: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

22 Porvair plc Interim Report 2020

12 Basis of preparation (continued)

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 charged 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.

Page 25: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Notes to the condensed half-yearly consolidated financial information continued

23 Porvair plc Interim Report 2020

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.

Page 26: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

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

Statement of Directors’ responsibilities

24 Porvair plc Interim Report 2020

Page 27: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

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

25 Porvair plc Interim Report 2020

Independent review report to Porvair plc

Page 28: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Registrar services Our shareholder register is managed and administered by Link Asset Services. Link Asset Services should be able to help you with most questions you have in relation to your holding in Porvair plc shares. Link can be contacted at: Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU www.linkassetservices.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). Email: [email protected]. In addition, Link offers a range of other services to shareholders including a share dealing service and a share portal to manage your holdings. Share dealing service A share dealing service is available to existing shareholders to buy or sell the Company’s shares via Link 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.linksharedeal.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 sell their shares. Shareholders in any doubt as to what action to take are recommended to seek financial advice from an independent financial adviser authorised by the Financial Services and Markets Act 2000.

Shareholder information

26 Porvair plc Interim Report 2020

Page 29: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Directors Ben Stocks (Group Chief Executive) Chris Tyler (Group Finance Director) John Nicholas* (Chairman) Sally Martin* (Senior Independent Non-Executive Director and Chairman of the Remuneration Committee) Jasi Halai* (Non-Executive Director and Chairman of the Audit Committee)

*denotes independent Non-Executive Director Members of the Audit Committee Jasi Halai (Chairman) Sally Martin Members of the Remuneration Committee Sally Martin (Chairman) John Nicholas Jasi Halai Members of the Nomination Committee John Nicholas (Chairman) Sally Martin Jasi Halai Company Secretary and registered office Chris Tyler Porvair plc 7 Regis Place Bergen Way King’s Lynn Norfolk PE30 2JN Telephone: +44 (0) 1553 765500 Fax: +44 (0) 1553 765599 www.porvair.com Company registration number 01661935

27 Porvair plc Interim Report 2020

Board committees, Secretary and advisers

Independent auditor Deloitte LLP Statutory Auditor 1 Station Square Cambridge CB1 2GA Principal bankers Barclays Bank plc Barclays Commercial Bank PO Box 885 Mortlock House Station Road Histon Cambridge CB24 9DE Handelsbanken plc Ground Floor Unit 4 Summit Park Sygnet Road Hampton Peterborough PE7 8FD Registrars and transfer office Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Solicitors Travers Smith LLP 10 Snow Hill London EC1A 2AL Stockbrokers Peel Hunt LLP Moor House 120 London Wall London EC2Y 5ET

Page 30: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Designed and produced by Bexon Woodhouse www.bexonwoodhouse.com

Page 31: Porvair plc Interim Report 2020/media/Files/P/Porvair/results-centre/... · guidelines and social distancing. Management’s second priority has been to prepare for recessionary conditions

Porvair plc 7 Regis Place Bergen Way King’s Lynn Norfolk PE30 2JN Telephone: +44 (0)1553 765500 Fax: +44 (0)1553 765599 www.porvair.com