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Porvair PLC (PRV)

  Print          Annual reports

Monday 01 February, 2021

Porvair PLC

Final Results

RNS Number : 4576N
Porvair PLC
01 February 2021
 

For immediate release  1 February 2021

 

Results for the year ended 30 November 2020

Resilient performance in challenging circumstances, optimism for the future.

Porvair plc ("Porvair" or "the Group"), the specialist filtration, laboratory and environmental technology group, announces its results for the year ended 30 November 2020.

Highlights

· Revenue 7% lower at £135.0 million (2019: £144.9 million).

· Operating profit 15% lower at £12.6 million (2019: £14.8 million).

· Adjusted operating profit* 13% lower at £13.6 million (2019: £15.6 million).

· Profit before tax 17% lower at £11.6 million (2019: £14.0 million). Adjusted profit before tax* 15% lower at £12.6 million (2019: £14.8 million).

· Basic earnings per share was 18.4 pence (2019: 23.6 pence).  Adjusted basic earnings per share* were 21.6 pence (2019: 25.3 pence).

· Net cash was £4.9 million (2019: £4.0 million) after investing £4.2 million (2019: £14.1 million) in capital expenditure and acquisitions.

· Recommended final dividend of 3.3 pence (2019: 3.2 pence) bringing the full year dividend to 5.0 pence (2019: 4.9 pence).

Commenting on the outlook, Ben Stocks, Chief Executive, said:

"Until the pandemic recedes, near-term trading remains unpredictable and the Group continues to withhold earnings guidance. But the results for the year turned out to be better than initially feared in our contingency planning. This was partly because the Group went into the pandemic financially sound and stable; and partly because the underlying growth drivers for most of the markets we serve remain in place, even though they are currently more volatile than usual. We expect demand for emissions control, clean water, process efficiency and laboratory consumables to revert to normal levels as economies allow. Certain end markets, aerospace in particular, may take longer to recover; while others, mainly in the Laboratory Division, are already rebounding strongly.

 

"We entered 2021 with a strong balance sheet and a lower cost base than a year ago, which will be helpful while we wait for vaccinations to bring the pandemic under control. The next few months may continue to be difficult, but beyond that we are increasingly optimistic. Investments made over the last few years will help margins and our new product development pipeline is strong for the near term.  Prospects for the medium term are good and Porvair should return to its historical levels of growth once the pandemic retreats."

 

* See notes 1 and 3 for definitions and reconciliations.

 

For further information please contact:

Porvair plc

 

01553 765 500

 

Ben Stocks, Chief Executive

 

 

 

Chris Tyler, Group Finance Director

 

 

 

Buchanan Communications

 

020 7466 5000

 

Charles Ryland / Steph Watson

 

 

 

 

An analyst briefing will take place at 9:30 a.m. on Monday 1 February 2021 by video conference through invitation from Buchanan.

A copy of an audio webcast and the presentation will be available at www.porvair.com .

Operating review

Overview of 2020 and impact of Covid-19

Over the course of this extraordinary year, management has acted to protect staff wellbeing; adjust operations to changing levels of demand; and to continue investment for the post-Covid-19 economic recovery. There are early indications that the year ahead will show the benefits of these actions.

While 2020 started strongly, trading was overtaken by events: first in Wuhan where our plant was shut for eight weeks to the end of March; and later across the rest of the Group where supply was constrained by lockdowns in the second quarter and again towards the end of the year.  Order levels dropped in the early summer, with de-stocking sharpening declines in aerospace, molten metal and industrial markets. Actions were taken to ensure working practices were Covid-19 compliant and members of staff were fully supported when away from work. In July orders stabilised at a lower level and they have increased steadily since. Operating costs were reduced, ensuring that the Group remained profitable and cash generative throughout.  Recessionary effects meant the Group finished the year with 13% fewer staff.

The ill-wind of the pandemic was mainly a challenge, but it also brought opportunities. Manufacturing equipment upgrades for productivity improvements were more easily carried out. Periods of lower demand are good times to change process control software, clean facilities and improve workflow. There was more time for skills training.  It was also a good year for new product development, with some projects accelerating as technical staff were less drawn into daily production issues. New products have always been a focus at Porvair and the current pipeline is encouraging: new industrial process filters are in trials; wider applications have been found in superalloy filtration; and high volume life science filters for diagnostics are now in production and will need capacity expansion in early 2021. All of this will benefit the Group when demand recovers.

Porvair remains positioned to address global growth trends, some of which have been affected by the pandemic. While the near-term prospects for aerospace are more challenging than they have been in recent years, the outlook for laboratory sample preparation and diagnostics is much more positive. The fundamental drivers of Group demand remain in place: tightening environmental regulations; growth in analytical science; more carbon-efficient transportation; the replacement of plastic and steel by aluminium; and the drive for manufacturing process efficiency. 

Porvair's strategic purpose remains the development of specialist filtration, laboratory and environmental technologies for the benefit of all stakeholders, and the Board has been mindful of the need to balance these obligations this year. This statement, and the full Environmental, Social and Governance ('ESG') report that accompanies it, set out how the Group has sought to benefit customers, staff, shareholders, pensioners, and communities in 2020.

 

 

Financial Results

 

 

2020

 

2019

 

Change

 

£m

 

£m

 

%

Revenue

135.0

 

144.9

 

(7)

Operating profit

12.6

 

14.8

 

(15)

Adjusted operating profit*

13.6

 

15.6

 

(13)

Adjusted profit before tax*

12.6

 

14.8

 

(15)

Profit before tax

11.6

 

14.0

 

(17)

Adjusted earnings per share*

21.6p

 

25.3p

 

(15)

Earnings per share

18.4p

 

23.6p

 

(22)

 

 

 

 

 

 

Cash generated from operations

13.2

 

16.8

 

 

Net cash at 30 November

4.9

 

4.0

 

 

* see note 1 and note 3

Reported and constant currency revenue reduced by 7%.  Profit before tax reduced by 17%.  For the first time in many years the Group recorded significant adjusted items.  The principal adjustments concern the release of provisions; impairment of tangible assets, principally in China; and charges related to redundancies. These are set out in full in note 1.

Adjusted profit before tax reduced by 15% and adjusted earnings per share reduced by 15% to 21.6 pence.  The Group invested £4.2 million (2019: £14.1 million) in acquisitions and capital expenditure in 2020.

The Group's record for growth, cash generation and investment is as follows:

 

5 years

 

10 years

15 years

 

CAGR*

 

CAGR*

CAGR*

Revenue growth

7%

 

8%

8%

Earnings per share growth

3%

 

13%

11%

Adjusted earnings per share growth

6%

 

15%

13%

 

 

 

 

 

 

£m

 

£m

£m

Cash from operations

70.9

 

127.9

154.4

Investment in acquisitions and capital expenditure

50.5

 

72.2

86.3

* Compound annual growth rate

Porvair's strategy and purpose is little changed since 2004, a period that now encompasses two recessions and many years of growth. This longer term record gives the Board confidence that the Group can show resilience in difficult times, and will return to growth when economies allow.

Strategic statement and business model

Porvair's strategic purpose is the development of specialist filtration, laboratory and environmental technology businesses for the benefits of all stakeholders. Principal measures of success include consistent earnings growth over the medium term, and selected ESG measures as set out in the full ESG report.

Porvair 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 and must perform to a given specification.

Orders are won by offering the best technical solutions at an acceptable commercial cost. Technical expertise is necessary in all markets served. New products are often adaptations of existing designs with attributes validated in our own test and measurement laboratories. Experience in specific markets and applications is valuable in building customer confidence. Domain knowledge is important, as is deciding where to direct resources.

This leads the Group to:

1.  Focus on markets with long term growth potential.

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

3.  Make new product development a core business activity.

4.  Establish geographic presence where end-markets require.

5.  Invest in both organic and acquired growth.

Therefore:

· We focus on three operating segments: Aerospace & Industrial; Laboratory; and Metal Melt Quality. All have clear long term growth drivers.

· Our products typically reduce emissions or protect downstream systems and, as a result, are replaced regularly.  A high proportion of our annual revenue is from repeat orders.

· Through a focus on new product development, we aim to generate growth rates in excess of the underlying market.  Where possible, we build intellectual property around our product developments.

· Our geographic presence follows the markets we serve.  In the last twelve months: 45% of revenue was in the Americas; 26% in Asia; 18% in Continental Europe; 10% in the UK; and 1% in Africa.  The Group has plants in the US, UK, Germany, the Netherlands and China.  In the last twelve months, 47% of revenue was manufactured in the US, 31% in the UK, 17% in Continental 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.

The Board understands that responsible business development is essential for creating long term value for stakeholders.  Most of the products made by Porvair are used to the benefit of the environment.  Our water analysis equipment measures contamination levels in water.  Industrial filters are typically needed to reduce emissions or improve efficiency. Aerospace filters improve process reliability. Nuclear filters confine fissile materials.  Metal Melt Quality filters reduce waste and help improve the strength to weight ratio of metal components. 

A full ESG report is published for the first time with this statement, setting out:

· Porvair's ESG management framework and goals;

· How the Group might address a net zero carbon future;

· ESG metrics and results; and

· How the Group has acted for the benefit of its stakeholders in 2020.

 

 

Aerospace & Industrial

 

 

2020

 

2019

 

Change

 

£m

 

£m

 

%

Revenue

62.0

 

64.6

 

(4)

 

 

 

 

 

 

Operating profit

8.0

 

8.2

 

(3)

Adjusted operating profit*

6.3

 

8.5

 

(26)

* see note 2

The Aerospace & Industrial division designs and manufactures a wide range of specialist filtration products, demand for which grows as aerospace and industrial customers seek cleaner, safer or more efficient operations.  Differentiation is achieved through design engineering; the development of intellectual property; and quality accreditations.

Revenue was lower by 4%, with a 19% reduction in aerospace revenue offset by a strong first full year from Royal Dahlman, which traded ahead of expectations in both its petrochemical and distribution businesses. UK industrial filtration capacity was upgraded during the year to support Royal Dahlman, where orders for flue gas emission filters in the first half of 2021 are strong.  Long order lead times in the aerospace supply chain meant that aerospace revenue fell later in the year. Second half aerospace revenues were 29% lower than the same period in 2019, in line with wider industry metrics.  Gasification revenues were £7.0 million (2019: £11.0 million), recognised in the first half of 2020.  These will repeat, but irregularly and not necessarily in 2021.  US general industrial had a mixed year but finished strongly, particularly in microelectronics and sintered products, for which the plant in Caribou, Maine, was extended and upgraded.

In such challenging circumstances, management acted to adjust costs and staff numbers reduced by 21% over the course of the year, mainly in the UK based aerospace business. The UK government Jobs Retention Scheme enabled the division to assess its response to falls in order patterns before making organisational changes or redundancies.  During that time, all staff furloughed received their full salary and benefits.  The Group has concluded that it should fund the impact of necessary restructuring in full and Job Retention Scheme payments received for employees made redundant have been returned. The Board sees this action as being consistent with its purpose of developing Porvair for the benefit of all stakeholders.

Laboratory

 

2020

 

2019

 

Change

 

£m

 

£m

 

%

Revenue

42.0

 

43.7

 

(4)

Inter segment revenue

(1.9)

 

(2.4)

 

 

External revenue

40.1

 

41.3

 

(3)

 

 

 

 

 

 

Operating profit

7.0

 

6.4

 

9

Adjusted operating profit*

6.7

 

6.6

 

2

* see note 2

The Laboratory division has two operating businesses: Porvair Sciences (including J G Finneran) and Seal Analytical.

· Porvair Sciences manufactures laboratory filters and associated consumables.  Differentiation is achieved through proprietary manufacturing capabilities and filtration media.

· Seal Analytical is a leading supplier of instruments and consumables for environmental laboratories for which demand is driven by water quality regulations.  Differentiation is achieved through consistent new product development.

Revenue in 2020 fell 4% with demand affected in the middle of the year by Covid-19 related shutdowns of environmental, academic and industrial laboratories. 

Towards the end of the year demand rebounded strongly with sales from new products contributing well.  Adjusted operating profit grew 2% as a result.

Clean room manufacturing capacity was increased in the US and laboratory space and equipment upgraded in the UK.  Sales resources were added in Europe. Further expansion for the manufacturing of diagnostic components is underway with record orders received for the early part of 2021. 

Metal Melt Quality

 

2020

 

2019

 

Change

 

£m

 

£m

 

%

Revenue

32.9

 

39.0

 

(16)

Operating (loss)/ profit

(0.2)

 

2.8

 

(106)

Adjusted operating profit*

2.8

 

2.8

 

(1)

* see note 2

The Metal Melt Quality division manufactures filters for molten aluminium, ductile iron and nickel-cobalt alloys.  It has a well differentiated product range based on patented products and a promising new product pipeline.

Revenue was 16% lower than 2019, but adjusted operating profit was flat. This was well ahead of management's expectation and was achieved through tight cost control and a significantly better performance in China which saw 37% revenue growth. US operations used periods of lower demand to clean manufacturing facilities, improve workflow and upgrade process control software to a Group standard package.  After a difficult year, which included restructuring costs and an impairment of the Chinese assets (see note 1), the division reported sequential growth between the third and fourth quarter and better order books into 2021.

Dividends and Pension

Consistent with its strategic purpose of developing Porvair for the benefit of all stakeholders, the Board has been mindful of the interests of shareholders and pensioners. The Company increased its deficit recovery payments to the Porvair Pension Plan to £1.6 million (2019: £1.0 million) per annum. 

The Board re-affirms its progressive dividend policy and recommends a final dividend of 3.3 pence per share, a cost of £1.5 million (2019: 3.2 pence per share, a cost of £1.5 million).  The full year dividend increases by 2% to 5.0 pence per share, a cost of £2.3 million (2019: 4.9 pence per share, a cost of £2.2 million).  The Company had £17.9 million (2019: £19.2 million) of distributable reserves at 30 November 2020.

Staff

This has been a challenging year and the response of our staff to the many difficulties they have faced has been outstanding. Porvair believes in devolving management autonomy as far as possible and the actions taken by our management teams in looking after staff wellbeing have been exemplary. The Board takes employee engagement seriously and, as set out in the ESG report, has a system in place to make sure it hears and responds to all staff comments. We are fortunate to have colleagues around the Group who show such pragmatism and optimism at times like these and the Board is very grateful for the hard work, enthusiasm and dedication of all our staff.

Current trading and outlook

Until the pandemic recedes near-term trading remains unpredictable and the Group continues to withhold earnings guidance. But the results for the year turned out to be better than initially feared in our contingency planning. This was partly because the Group went into the pandemic financially sound and stable; and partly because the underlying growth drivers for most of the markets we serve remain in place, even though they are currently more volatile than usual. We expect demand for emissions control, clean water, process efficiency and laboratory consumables to revert to normal levels as economies allow. Certain end markets, aerospace in particular, may take longer to recover; while others, mainly in the Laboratory Division, are already rebounding strongly.

 

We entered 2021 with a strong balance sheet and a lower cost base than a year ago, which will be helpful while we wait for vaccinations to bring the pandemic under control. The next few months may continue to be difficult, but beyond that we are increasingly optimistic. Investments made over the last few years will help margins and the new product development pipeline is strong for the near term. Prospects for the medium term are good and Porvair should return to its historical levels of growth once the pandemic retreats.

 

Ben Stocks

Group Chief Executive

29 January 2021

 

 

 

 

 

 

Financial review

 

Group results

 

2020

 

2019

 

Change

 

£m

 

£m

 

%

Revenue

135.0

 

144.9

 

(7)

Operating profit

12.6

 

14.8

 

(15)

Profit before tax

11.6

 

14.0

 

(17)

Profit after tax

8.4

 

10.8

 

(22)

 

Reported and constant currency (see note 1) revenue fell 7%. Royal Dahlman contributed a full year for the first time.  Excluding Royal Dahlman, revenue fell by 19%.  Operating profit was £12.6 million (2019: £14.8 million) and profit before tax was £11.6 million (2019: £14.0 million).  Profit after tax was £8.4 million (2019: £10.8 million).

Alternative performance measures - profit

 

2020

 

2019

 

Change

 

£m

 

£m

 

%

Adjusted operating profit

13.6

 

15.6

 

(13)

Adjusted profit before tax

12.6

 

14.8

 

(15)

Adjusted profit after tax

9.9

 

11.6

 

(14)

 

The Group presents alternative performance measures to enable a better understanding of its trading performance (see note 1).

Adjusted operating profit and adjusted profit before tax exclude items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading.  Adjusted operating profit excludes £1.0 million (2019: £0.8 million) of net charges from operating profit.  These are:

· the impact of acquiring businesses:

The amortisation of intangible assets arising on acquisition of businesses was £0.6 million (2019: £0.6 million);

Other acquisition related adjustments to profit and loss related to acquiring businesses of £0.4 million credit (2019: £0.2 million charge).  In 2020, the £0.4 million credit relates to the release of earnout contingent consideration (see note 12).

· other items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading:

Restructuring costs of £2.2 million (2019: £nil) comprised redundancy costs and plant reconfigurations related to the impact of the Covid-19 pandemic, principally arising in the Aerospace & Industrial and Metal Melt Quality divisions;

A net credit of £4.0 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 £1.1 million (2019: £nil) receivable due over the next five years; and

An impairment write down of tangible assets of £2.6 million (2019: £nil).  £2.3 million results from the Board's review of Chinese operations taking a more prudent view of asset values based on changing geopolitical and international trade assumptions. £0.3 million of redundant fixed assets in Aerospace & Industrial have been written off.

 

Group operating performance

Revenue fell 7% and adjusted operating profit fell 13%. Adjusted operating margin was 10.1% (2019: 10.8%).  Adjusted operating margins in the Aerospace & Industrial division were 10.1% (2019: 13.2%).  Lower revenue from the second quarter, particularly in aerospace, drove down margins.  Adjusted operating margins in the Laboratory division were 16.0% (2019: 15.1%).  A switch to higher margin diagnostic equipment products and away from industrial products improved the margin in the second half. Metal Melt Quality operating margins increased to 8.5% (2019: 7.3%). Lower sales in the US led to lower US margins despite a strong operational performance but this was offset by a better performance in China.  Adjusted Central costs reduced to £2.2 million (2019: £2.4 million). 

Impact of exchange rate movements on performance

The international nature of the Group's business means that relative movements in exchange rates can affect reported performance.  The rate used for translating the results of overseas operations were:

 

2020

 

2019

Average rate for translating the results:

 

 

 

US $ denominated operations

$1.28:£

 

$1.27:£

Euro denominated operations

€1.13:£

 

€1.14:£

 

 

 

 

Closing rate for translating the balance sheet:

 

 

 

US $ denominated operations

$1.34:£

 

$1.29:£

Euro denominated operations

€1.12:£

 

€1.17:£

 

The very similar average rates for the year used for translating the US dollar and Euro into Sterling meant that there was no significance difference between reported revenue and revenue at constant currency.

In the year, the Group sold $28.1 million (2019: $27.0 million) at an average rate of $1.30:£1 (2019: $1.28:£1) and €3.5 million (2019: €3.5 million) at an average rate of €1.15:£1 (2019: €1.14:£1). 

At 30 November 2020, the Group had $1.3 million (2019: $9.9 million) of outstanding forward foreign exchange contracts; hedge accounting has been applied to $nil (2019: $8.6 million) of these contracts. The Group had $4.1 million (2019: $7.8 million) of net current assets on the UK operations' balance sheet. 

Finance costs

Net interest payable comprises bank borrowing costs, interest on lease liabilities, interest on the Group's pension deficit and the cost of unwinding discounts on provisions.  Interest increased in the year to £1.0 million (2019: £0.8 million).  The implementation of IFRS 16 for the first time this year resulted in an interest charge of £0.4 million (2019: £nil). The defined benefit pension scheme interest cost reduced to £0.3 million (2019: 0.4 million), bank interest and borrowing facilities non-utilisation fees were £0.3 million (2019: £0.3 million). The charge related to unwinding discounted provisions reduced to £nil (2019: £0.1 million).

Interest cover was 14 times (2019: 19 times).  Interest cover on bank finance costs was 49 times (2019: 45 times).

Tax

The Group tax charge was £3.1 million (2019: £3.2 million).  The tax charge on the adjusting items was £0.5 million and the tax on the adjusted profit before tax was £2.6 million. This is an effective rate of 19% (2019: 23%), in line with the UK standard corporate tax rate of 19.0% (2019: 19.0%).  The tax rate in the UK was lower than the standard rate because of tax relief on the exercise of share options.  US tax was at an effective rate of 22% (2019: 23%) and in the Netherlands it was 20% (2019: 22%).  The Group tax rate was pushed up by profits made in Germany, which attract a 31% tax rate (2019: 30%). The tax rate is lower than the prior year because no further losses in China were incurred.  In the prior year, the tax rate was increased by 2% because the Group did not take a tax credit relating to the losses arising in China. 

The tax charge comprises current tax of £2.3 million (2019: £2.6 million) and a deferred tax charge of £0.8 million (2019: £0.6 million). 

The Group has current tax provisions of £0.2 million (2019: £0.6 million). The current tax provision includes £1.0 million (2019: £1.2 million) for uncertainties relating to the interpretation of tax legislation in the Group's operating territories offset by payments on account and amounts recoverable for overpayments of tax.

The Group carries a deferred tax asset of £2.6 million (2019: £2.4 million) and a deferred tax liability of £2.8 million (2019: £2.6 million).  The deferred tax asset relates principally to the deficit on the pension fund and share-based payments.  The deferred tax liability relates to accelerated capital allowances, capitalised development costs and other timing differences, predominantly arising in the US and on acquired intangibles in the Netherlands. 

Total equity and distributable reserves

Total equity at 30 November 2020 was £98.2 million (2019: £95.3 million), an increase of 3% over the prior year. 

Increases in total equity arose from: profit after tax of £8.4 million (2019: £10.8 million); employee share option schemes net of tax of £0.1 million (2019: £0.7 million); and £0.4 million (2019: £0.6 million) arising on the proceeds of the issue of shares on share option exercises.

Reductions in total equity arose from: dividends paid of £2.3 million (2019: £2.1 million); purchases by the Employee Benefit Trust of the Company's own shares charged directly to equity of £0.7 million (2019: £0.6 million); a pension scheme actuarial loss (net of tax) of £1.3 million (2019: £2.3 million); and exchange losses (net of tax) on translation of £1.7 million (2019: £1.1 million). 

The Company had £17.9 million (2019: £19.2 million) of distributable reserves at 30 November 2020.  The Company's distributable reserves increased in the year from dividends received from other Group companies, offset by an actuarial loss, head office costs, investment write downs and dividends paid to shareholders. 

Return on capital employed

The Group's after tax return on capital employed of 12% (2019: 14%) gives a measure of the operating return the Group makes on all its invested capital.  It fell in the year because of lower profitability and an increase in average capital employed of £5.2 million.  The after tax return on operating capital employed of 28% (2019: 36%) gives a measure of the returns that the Group makes on its fixed assets and working capital.  It fell in 2020 because of lower profitability and an increase in the average capital employed of £5.2 million mainly comprising the effect of a full year of ownership of Royal Dahlman.  The Group's divisions have post-tax weighted average costs of capital of between 6% and 8%.

 

 

Cash flow

The table below summarises the key elements of the cash flow for the year:

Cash flow

2020

 

2019

 

£m

 

£m

Operating cash flow before working capital

19.5

 

18.1

Working capital movement

(6.3)

 

(1.3)

Cash generated from operating activities

13.2

 

16.8

Interest

(0.3)

 

(0.3)

Tax

(2.5)

 

(3.3)

Capital expenditure net of disposals

(3.6)

 

(4.3)

 

6.8

 

8.9

Acquisitions

(0.6)

 

(9.8)

Dividends

(2.3)

 

(2.1)

Share issue proceeds

0.4

 

0.5

Purchase of EBT shares

(0.7)

 

(0.6)

Increase in bank borrowings

1.5

 

4.6

Repayment of right of use lease liabilities

(2.3)

 

-

Net cash increase in the year

2.8

 

1.5

 

 

 

 

Net debt reconciliation

2020

 

2019

 

£m

 

£m

Net cash reported at 30 November

4.0

 

6.6

IFRS 16 transition adjustment

(15.2)

 

-

Net cash at 1 December

(11.2)

 

6.6

Increase in cash and cash equivalents

2.8

 

1.5

Increase of borrowings

(1.5)

 

(4.6)

Decrease in lease liabilities

1.8

 

-

Exchange (losses)/gains

(0.6)

 

0.5

Net (debt)/cash at 30 November

(8.7)

 

4.0

Net cash and bank debt

4.9

 

4.0

Lease liabilities

(13.6)

 

-

Net (debt)/cash at 30 November

(8.7)

 

4.0

 

Generating free cash flow is key to the Group's business model and operating cash flow of £13.2 million (2019: £16.8 million) represented an 80% (2019: 89%) conversion rate of operating profit before depreciation and amortisation.  Net working capital increased by £6.3 million (2019: £1.3 million).  Receivables reduced by £4.1 million (2019: increase of £0.7 million) following good receivables collections and a weaker fourth quarter than the prior year.  Inventories increased by £0.3 million (2019: £2.4 million). Inventories in the laboratory division increased by £0.8 million reflecting the strong order book and aerospace finished goods increased by £0.9 million, which will reduce as aerospace orders recover.  Throughout the rest of the Group inventories reduced by £1.6 million.  Payables and provisions reduced by £10.1 million (2019: increase of £1.7 million), £5.1 million from releasing provisions in the Aerospace & Industrial division, the reduction in other payables reflects reduced purchases in the final quarter, lower accruals and faster payments to suppliers.

 

 

Provisions, contingent liabilities and performance bonds

The Group has £4.6 million (2019: £9.8 million) of provisions for dilapidations and warranty risks.  In December 2019, a $0.9 million (£0.7 million) performance bond was called by the customer, the amount was paid and charged to provisions.  Subsequently progress has been made on resolving warranty risks and $5.0 million of performance bonds have lapsed.  Consequently £5.1 million of provisions have been released.  0.7 million of warranty provisions have been created in relation to sales made in the year.

At 30 November 2020, the Group had the following advanced payment bonds (relating to monies received in advance on contracts) and performance bonds issued to customers in US dollars and Euros:

 

 

 

 

$'000

 

€'000

Advanced payment bonds

 

 

-

 

162

Performance bonds

 

 

2,549

 

842

At 30 November 2020

 

 

2,549

 

1,004

 

 

 

 

 

 

 

 

 

$'000

 

€'000

Performance bonds

 

 

8,534

 

638

At 30 November 2019

 

 

8,534

 

638

 

The uncalled performance bonds are expected to be called or released no later than March 2023.

Capital expenditure

Capital expenditure was £3.6 million (2019: £4.3 million) in the year.  Expenditure was spread across each division: £0.9 million (2019: 0.5 million plus £0.4 million brought into use in the year) was spent on buildings and infrastructure mainly to complete the 20,000 square feet of space in the Laboratory division in the US.  £2.1 million (2019: £3.4 million) was spent on plant and machinery plus a further £1.0 million (2019: £0.5 million) in the course of construction last year brought into use this year.  £0.5 million (2019: £0.1 million) was spent on equipment that is in the course of construction.  £0.2 million (2019: £0.4 million) was spent on intangible assets including software upgrades and intellectual property costs.  

Acquisitions

£0.6 million (2019: £9.8 million) was spent on acquisitions in the year, all in relation to earnout payments for Rohasys B.V.  There are no earnout payments remaining.

Pension schemes

The Group supports its defined benefit pension scheme in the UK ("The Plan"), which is closed to new members, and provides access to defined contribution schemes for its other employees.  A summary of the costs of pension provision is given below:

 

2020

 

2019

 

£m

 

£m

Charged to operating costs:

 

 

 

Defined contribution schemes

2.4

 

2.1

Defined benefit scheme

0.7

 

0.6

Additional pension provision

0.2

 

-

Pension protection levy

0.1

 

0.1

Total pensions charged to operating costs

3.4

 

2.8

Charged to interest payable:

 

 

 

Defined benefit scheme

0.3

 

0.4

Total pensions charged to interest payable

0.3

 

0.4

Total pension costs

3.7

 

3.2

 

The Group's cash contributions paid to The Plan were £2.2 million (2019: £1.6 million). 

The Group's net retirement benefit obligation was £15.4 million (2019: £14.5 million).  The Plan's liabilities increased to £48.6 million (2019: £45.2 million).  The Plan's assets increased to £33.4 million (2019: £30.8 million). There were a further £0.3 million (2019: £0.1 million) of non-Plan liabilities.

The actuarial loss in the year of £2.0 million (2019: £2.7 million) net of £0.7 million (2019: £0.5 million) of tax was recognised in the statement of comprehensive income.  The Plan's assets achieved an actuarial gain of £1.6 million (2019: £3.2 million).  The experience loss of £nil (2019: £0.9 million) related to adjustments arising from the triennial valuation completed in 2019.  The actuarial loss on the liabilities of £3.6 million (2019: £5.0 million) arose principally from changes to the discount rate used to value The Plan's liabilities and a change in the mortality assumption:

· The discount rate reduced from 2.0% to 1.5%, as a result of lower AA bond yields, which accounted for £3.4 million in increased liabilities.

· The mortality assumptions have been updated to incorporate the CMI 2019 Core Projection Model.  This increased the life expectancy of 65 year old women by 0.2 years and men by 0.1 years.  The liabilities increased by £0.2 million as a result.

The triennial actuarial valuation of The Plan determines the cash contributions that the Group makes to The Plan.  A full actuarial valuation was completed in the year based on The Plan's position at 31 March 2018.  Based on the valuation, the Group agreed to set the employer's contributions at 20.9% (previously 18.9%) of salary.  The Group committed to making a £0.2 million annual contribution towards the running costs of The Plan from April 2019, which will increase by 3.5% per annum thereafter.  The Group also committed to make additional annual contributions, to cover the past service deficit, of £1.6 million (previously £1.0 million) per annum from 1 December 2019 until 1 December 2028. 

Borrowings and bank finance

At 30 November 2020, the Group had cash balances of £15.6 million (2019: £12.9 million) and borrowings of £10.7 million (2019: £8.9 million). 

In 2017, the Group secured a five year revolving credit facility of €23 million (£20.4 million) with Barclays Bank plc and Handelsbanken plc.  The facility has a margin over LIBOR of 1.5% and a non-utilisation fee of 0.4375%.  The Group also has a £2.5 million overdraft facility provided by Barclays Bank plc.  The financial covenants require the Group to maintain interest cover of 3.5 times and net debt to be less than 2.5 times EBITDA.

In May 2020, the Group received loan proceeds of $1.8 million (£1.4 million) from the Truist Bank under the Paycheck Protection Program ("PPP").  The PPP provides for loans to qualifying businesses which are forgivable after eight weeks provided the loan proceeds are used for eligible purposes and payroll levels are maintained.  The Group had not taken forgiveness at the year end  and the loan is treated as current borrowings in these accounts.

At 30 November 2020, the Group had net cash of £4.9 million (2019: £4.0 million), €11.1 million (£9.9 million) of unused facilities (2019: €13.3 million of unused facilities (£11.4 million)), and an unutilised overdraft facility of £2.5 million (2019: £2.5 million). 

Adoption of IFRS 16

At 30 November 2020, the Group had right of use assets of £12.8 million (2019: £nil) and lease liabilities of £13.6 million (2019: £nil) arising as a result of adopting IFRS 16 for the first time in the year ended 30 November 2020.

Under IFRS 16, the Group's leases for property, plant and equipment previously treated as operating leases were brought on to the balance sheet from 1 December 2019.  £14.6 million of right of use assets and £15.2 million of discounted lease liabilities were recognised.  A net £0.6 million of previously accrued and prepaid rent was eliminated.  There was no change to opening reserves. 

The profile of expenses related to leasing arrangements has changed.  Straight line operating lease expenses have been replaced by a straight line depreciation of the right of use assets and interest charges on lease liabilities, which follow a reducing balance profile.  Consequently, there will be earlier recognition of cost under IFRS 16 compared to the previous treatment under IAS 17.  Over the lifetime of each lease there will be no change in the overall income statement impact or the cash paid out.

The adoption of IFRS 16 reduced adjusted profit before tax by £0.2 million and basic earnings per share by 0.4 pence per share.  The adjustments are shown below:

 

 

2020

2020

 

Adjusted operating profit

£m

Adjusted profit before tax

£m

As reported

13.6

12.6

Operating lease rentals, removed from operating costs

(2.3)

(2.3)

Depreciation on leases - right of use assets, added to operating costs

2.1

2.1

Interest on lease liabilities

-

0.4

Pre-IFRS 16

13.4

12.8

Finance and treasury policy

The treasury function at Porvair is managed centrally, under Board supervision.  It seeks to limit the Group's trading exposure to currency movements. The Group does not hedge against the impact of exchange rate movements on the translation of profits and losses of overseas operations.

The Group finances its operations through share capital, retained profits and, when required, bank debt. It has adequate facilities to finance its current operations and capital plans for the foreseeable future.

International trade 

The UK left the EU on 31 January 2020 and signed a trade agreement with the EU, which became effective on 31 December 2020.  The Board does not expect the impact of this change in trading arrangements to be significant for the Group.  The Board notes that revenues between the UK and Continental Europe were less than 10% of total revenues in 2020.  45% of Group revenue is manufactured in the US and higher US tariffs on China trade have had an effect on trading.  A few customers in the US and China have switched back to domestic suppliers, and the Group has both won and lost accounts as a result.  The net effect has been small.

 

 

 

Chris Tyler

Group Finance Director

29 January 2021

 

 

 

Consolidated income statement

For the year ended 30 November

 

 

Note

2020

 

2019

Continuing operations

 

 

£'000

 

£'000

Revenue

 

1,2

135,011

 

144,932

Cost of sales

 

 

(91,469)

 

(97,505)

Gross profit

 

 

43,542

 

47,427

Distribution costs

 

 

(2,373)

 

(2,259)

Administrative expenses

 

 

(28,612)

 

(30,381)

Adjusted operating profit

 

1,2

13,571

 

15,592

Adjustments

 

 

 

 

 

Amortisation of acquired intangibles

 

1

(611)

 

(588)

Other acquisition related adjustments

 

1

442

 

(217)

Restructuring

 

1

(2,246)

 

-

Settlement of project related warranties

 

1

4,005

 

-

Impairment of tangible assets

 

1

(2,604)

 

-

Operating profit

 

1,2

12,557

 

14,787

Finance income

 

 

1

 

7

Finance costs

 

 

(1,001)

 

(809)

Profit before income tax

 

1,2

11,557

 

13,985

Adjusted income tax expense

 

 

(2,642)

 

(3,220)

Tax effect of adjustments to operating profit

 

1

(472)

 

-

Income tax expense

 

 

(3,114)

 

(3,220)

Profit for the year

 

 

8,443

 

10,765

 

 

 

 

 

 

Profit attributable to:

 

 

 

 

 

Owners of the parent

 

 

8,443

 

10,768

Non-controlling interests

 

 

-

 

(3)

Profit for the year

 

 

8,443

 

10,765

 

 

 

 

 

 

Earnings per share (basic)

 

3

18.4p

 

23.6p

Adjusted earnings per share (basic)

 

3

21.6p

 

25.3p

 

 

 

 

 

 

Earnings per share (diluted)

 

3

18.4p

 

23.5p

Adjusted earnings per share (diluted)

 

3

21.6p

 

25.3p

 

Consolidated statement of comprehensive income

For the year ended 30 November

 

 

2020

£'000

 

2019

£'000

Profit for the year

 

8,443

 

10,765

Other comprehensive (expense)/income:

 

 

 

 

Items that will not be reclassified to profit and loss

 

 

 

 

Losses in defined benefit pension plans net of tax

 

(1,334)

 

(2,278)

Items that may subsequently be reclassified to profit and loss

 

 

 

 

Exchange differences on translation of foreign subsidiaries

 

(1,713)

 

(1,212)

Tax relating to components of other comprehensive income

 

-

 

149

Changes in fair value of forex contracts held as a cash flow hedge

 

(35)

 

35

 

 

(1,748)

 

(1,028)

Net other comprehensive expense

 

(3,082)

 

(3,306)

Total comprehensive income for the year

 

5,361

 

7,459

 

 

 

 

 

Comprehensive income attributable to:

 

 

 

 

Owners of the parent

 

5,361

 

7,462

Non-controlling interests

 

-

 

(3)

Total comprehensive income for the year

 

5,361

 

7,459

 

 

 

Consolidated balance sheet

As at 30 November

 

Note

 

2020

£'000

 

2019

£'000

 

Non-current assets

 

 

 

 

 

 

Property, plant and equipment

5

 

20,716

 

22,779

Right of use assets

6

 

12,762

 

-

Goodwill and other intangible assets

7

 

70,039

 

71,512

Deferred tax asset

 

 

2,614

 

2,360

Other receivables

 

 

-

 

1,048

 

 

 

106,131

 

97,699

Current assets

 

 

 

 

 

Inventories

 

 

23,355

 

23,197

Trade and other receivables

 

 

20,674

 

24,153

Derivative financial instruments

 

 

23

 

48

Cash and cash equivalents

 

 

15,563

 

12,889

 

 

 

59,615

 

60,287

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Trade and other payables

8

 

(20,197)

 

(25,989)

Current tax liabilities

 

 

(192)

 

(564)

Borrowings

9

 

(1,379)

 

-

Lease liabilities

6

 

(2,007)

 

-

Provisions

10

 

(4,365)

 

(9,526)

 

 

 

(28,140)

 

(36,079)

 

 

 

 

 

 

Net current assets

 

 

31,475

 

24,208

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

Borrowings

9

 

(9,303)

 

(8,875)

Deferred tax liability

 

 

(2,839)

 

(2,588)

Retirement benefit obligations

 

 

(15,395)

 

(14,450)

Other payables

 

 

-

 

(417)

Lease liabilities

6

 

(11,609)

 

-

Provisions

10

 

(268)

 

(242)

 

 

 

(39,414)

 

(26,572)

Net assets

 

 

98,192

 

95,335

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

Share capital

11

 

923

 

921

Share premium account

11

 

36,927

 

36,504

Cumulative translation reserve

 

 

7,645

 

9,358

Retained earnings

 

 

52,697

 

48,552

Equity attributable to owners of the parent

 

 

98,192

 

95,335

Total equity

 

 

98,192

 

95,335

 

 

Consolidated cash flow statement

For the year ended 30 November

 

Note

 

2020

£'000

 

2019

£'000

Cash flows from operating activities

 

 

 

 

 

Cash generated from operations

14

 

13,220

 

16,758

Interest paid

 

 

(347)

 

(343)

Tax paid

 

 

(2,551)

 

(3,256)

Net cash generated from operating activities

 

 

10,322

 

13,159

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Interest received

 

 

1

 

7

Acquisition of subsidiaries (net of cash acquired)

12

 

(588)

 

(9,761)

Purchase of property, plant and equipment

5

 

(3,458)

 

(3,943)

Purchase of intangible assets

7

 

(166)

 

(363)

Net cash used in investing activities

 

 

(4,211)

 

(14,060)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from issue of ordinary share capital

11

 

425

 

550

Purchase of Employee Benefit Trust shares

 

 

(726)

 

(623)

Receipt of Payment Protection Plan loan

 

 

1,507

 

-

Increase in borrowings

 

 

-

 

4,648

Dividends paid to shareholders

4

 

(2,253)

 

(2,146)

Repayment of right of use lease liabilities

6

 

(2,297)

 

-

Net cash (used in)/from financing activities

 

 

(3,344)

 

2,429

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

2,767

 

1,528

Exchange losses on cash and cash equivalents

 

 

(93)

 

(131)

 

 

 

2,674

 

1,397

Cash and cash equivalents at 1 December

 

 

12,889

 

11,492

Cash and cash equivalents at 30 November

 

 

15,563

 

12,889

 

Reconciliation of net cash flow to movement in net cash

 

 

2020

£'000

 

2019

£'000

Net funds at 30 November 2019

 

4,014

 

6,625

IFRS 16 adjustment for lease liabilities

 

(15,218)

 

-

Net (debt)/funds at 1 December 2019

 

(11,204)

 

6,625

Net increase in cash and cash equivalents

 

2,767

 

1,528

Decrease in lease liabilities

 

1,778

 

-

Increase in borrowings

 

(1,507)

 

(4,648)

Effects of exchange rate changes

 

(569)

 

509

Net (debt)/funds at 30 November

 

(8,735)

 

4,014

 

Net cash and bank debt

 

4,881

 

4,014

Lease liabilities

 

(13,616)

 

-

Net (debt)/funds at 30 November

 

(8,735)

 

4,014

 

 

 Consolidated statement of changes in equity

 

 

Share capital

£'000

Share premium account

£'000

Cumulative translation reserve

£'000

 

Retained earnings

£'000

 

 

Total

£'000

Non-controlling interest

£'000

 

 

Total

£'000

Balance at 30 November 2018

917

35,958

10,570

42,024

89,469

3

89,472

IFRS 15 adjustment

-

-

-

(57)

(57)

-

(57)

Balance at 1 December 2018

917

35,958

10,570

41,967

89,412

3

89,415

Profit for the year

-

-

-

10,768

10,768

-

10,768

Other comprehensive income

-

-

(1,212)

(2,094)

(3,306)

-

(3,306)

Total comprehensive income for the year

 

-

 

-

 

(1,212)

 

8,674

 

7,462

 

-

 

7,462

Transactions with owners:

 

 

 

 

 

 

 

Consideration paid for purchase of own shares (held in trust)

 

-

 

-

 

-

 

(623)

 

(623)

 

-

 

(623)

Employee share option schemes:

 

 

 

 

 

 

 

- value of employee services net of tax

 

-

 

-

 

-

 

680

 

680

 

-

 

680

Proceeds from shares issued

4

546

-

-

550

-

550

Dividends paid (note 4)

-

-

-

(2,146)

(2,146)

-

(2,146)

Total transactions with owners recognised directly in equity

 

4

 

546

 

-

 

(2,089)

 

(1,539)

 

-

 

(1,539)

Adjustment arising from change in non-controlling interest

 

-

 

-

 

-

 

-

 

-

 

(3)

 

(3)

Balance at 30 November 2019

921

36,504

9,358

48,552

95,335

-

95,335

Profit for the year

-

-

-

8,443

8,443

-

8,443

Other comprehensive expense

-

-

(1,713)

(1,369)

(3,082)

-

(3,082)

Total comprehensive (expense)/income for the year

 

-

 

-

 

(1,713)

 

7,074

 

5,361

 

-

 

5,361

Transactions with owners:

 

 

 

 

 

 

 

Consideration paid for purchase of own shares (held in trust)

 

-

 

-

 

-

 

(726)

 

(726)

 

-

 

(726)

Employee share option schemes:

 

 

 

 

 

 

 

- value of employee services net of tax

 

-

 

-

 

-

 

50

 

50

 

-

 

50

Proceeds from shares issued

2

423

-

-

425

-

425

Dividends paid (note 4)

-

-

-

(2,253)

(2,253)

-

(2,253)

Total transactions with owners recognised directly in equity

 

2

 

423

 

-

 

(2,929)

 

(2,504)

 

-

 

(2,504)

Balance at 30 November 2020

923

36,927

7,645

52,697

98,192

-

98,192

 

Notes

 

1.  Alternative performance measures

The Group uses adjusted figures as alternative performance measures in addition to those reported under IFRS, as management believe that these measures provide a useful analysis of trends in underlying performance between divisions and compared with prior periods. 

 

Alternative revenue measures

 

 

2020

 

2019

 

Growth

Aerospace & Industrial

 

£'000

 

£'000

 

%

Underlying revenue

 

48,474

 

60,036

 

(19)

Acquisitions

 

11,313

 

2,452

 

 

Revenue at constant currency

 

59,787

 

62,488

 

(4)

Exchange

 

2,193

 

2,155

 

 

Revenue as reported

 

61,980

 

64,643

 

(4)

 

 

 

 

 

 

 

Laboratory

 

 

 

 

 

 

Revenue at constant currency

 

37,829

 

38,853

 

(3)

Exchange

 

2,298

 

2,427

 

 

Revenue as reported

 

40,127

 

41,280

 

(3)

 

 

 

 

 

 

 

Metal Melt Quality

 

 

 

 

 

 

Revenue at constant currency

 

30,020

 

35,377

 

(15)

Exchange

 

2,884

 

3,632

 

 

Revenue as reported

 

32,904

 

39,009

 

(16)

 

 

 

 

 

 

 

Group

 

 

 

 

 

 

Underlying revenue

 

116,323

 

134,266

 

(13)

Acquisitions

 

11,313

 

2,452

 

 

Revenue at constant currency

 

127,636

 

136,718

 

(7)

Exchange

 

7,375

 

8,214

 

 

Revenue as reported

 

135,011

 

144,932

 

(7)

 

Revenue at constant currency is derived from translating overseas subsidiaries results at budgeted fixed exchange rates.  In 2020 and 2019 the rates used were $1.4:£ and €1.2:£, compared with reported rates of $1.28:£1 (2019: $1.27:£1) and €1.13:£1 (2019: €1.14:£1).

 

Underlying revenue is revenue at constant currency adjusted for the impact of acquisitions made in the current and prior years.

 

 

1.  Alternative performance measures continued

 

Alternative profit measures

A reconciliation of the Group's adjusted performance measures to the reported IFRS measures is presented below:

 

 

 

 

2020

 

 

 

2019

 

 

 

Adjusted

£'000

Adjustments

£'000

Reported

£'000

 

Adjusted

£'000

Adjustments

£'000

Reported

£'000

Operating profit

13,571

(1,014)

12,557

 

15,592

(805)

14,787

Finance income

1

-

1

 

7

-

7

Finance costs

(1,001)

-

(1,001)

 

(809)

-

(809)

Profit before income tax

12,571

(1,014)

11,557

 

14,790

(805)

13,985

Income tax expense

(2,642)

(472)

(3,114)

 

(3,220)

-

(3,220)

Profit after tax

9,929

(1,486)

8,443

 

11,570

(805)

10,765

              

 

 

2020

 

2019

 

£'000

 

£'000

Amortisation of acquired intangibles

(611)

 

(588)

Other acquisition related adjustments

442

 

(217)

Restructuring

(2,246)

 

-

Settlement of project related warranties

4,005

 

-

Impairment of tangible assets

(2,604)

 

-

Adjustments affecting operating profit

(1,014)

 

(805)

 

 

 

 

Tax effect of adjustments

(472)

 

-

Total adjusting items

(1,486)

 

 

Adjusted operating profit and adjusted profit before tax exclude items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading:

· the impact of acquiring businesses:

The amortisation of intangible assets arising on acquisition of businesses was £0.6 million (2019: £0.6 million).

Other acquisitions related to adjustments to profit and loss related to acquiring businesses of £0.4 million credit (2019: £0.2 million charge).  In 2020, the £0.4 million credit relates to the release of earnout contingent consideration (see note 12).

· other items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading:

Restructuring costs of £2.2 million (2019: £nil) included redundancy costs and plant reconfigurations related to the impact of the Covid-19 pandemic;

A net release of £4.0 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 £1.1 million (2019: £nil) receivable due over the next five years; and

An impairment write down of assets of £2.6 million (2019: £nil).  £2.3 million results from the Board's review of Chinese operations taking a more prudent view of asset values based on changing geopolitical and international trade assumptions.  £0.3 million of redundant fixed assets in Aerospace & Industrial have been written off.

Return on capital employed

The Group uses two return measures to assess the return it makes on its investments: 

· return on capital employed of 12% (2019: 14%) is the tax adjusted operating profit as a percentage of the average capital employed.  Capital employed is the average of the opening and closing Group net assets less the average of the opening and closing net cash position; and

· return on operating capital employed of 28% (2019: 36%) is calculated on the same basis except that the capital employed is adjusted to remove the average of the opening and closing goodwill and the opening and closing pension deficit to give a measure of the operating capital.

 

 

 

2.  Segment information

The segmental analyses of revenue, operating profit/(loss), segment assets and liabilities, and geographical analyses of revenue are set out below:

 

2020

Aerospace & Industrial

 

Laboratory

 

Metal Melt Quality

 

Central

 

Group

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Total segment revenue

61,990

 

42,012

 

32,904

 

-

 

136,906

Inter-segment revenue

(10)

 

(1,885)

 

-

 

-

 

(1,895)

Revenue

61,980

 

40,127

 

32,904

 

-

 

135,011

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

6,279

 

6,718

 

2,803

 

(2,229)

 

13,571

Amortisation of acquired intangibles

 

(467)

 

 

(144)

 

 

-

 

 

-

 

 

(611)

Other acquisition related adjustments

 

-

 

 

442

 

 

-

 

 

-

 

 

442

Restructuring

(1,566)

 

(55)

 

(625)

 

-

 

(2,246)

Settlement of project related warranties

 

4,005

 

 

-

 

 

-

 

 

-

 

 

4,005

Impairment of tangible assets

 

(267)

 

 

-

 

 

(2,337)

 

 

-

 

 

(2,604)

Operating profit/(loss)

7,984

 

6,961

 

(159)

 

(2,229)

 

12,557

Interest payable and similar charges

 

-

 

 

-

 

 

-

 

 

(1,000)

 

 

(1,000)

Profit/(loss) before income tax

 

7,984

 

 

6,961

 

 

(159)

 

 

(3,229)

 

 

11,557

Adjusted income tax expense

 

-

 

 

-

 

 

-

 

 

(2,642)

 

 

(2,642)

Tax effect of adjustments to operating profit

 

-

 

 

-

 

 

-

 

 

(472)

 

 

(472)

Income tax expense

-

 

-

 

-

 

(3,114)

 

(3,114)

Profit/(loss) for the year

7,984

 

6,961

 

(159)

 

(6,343)

 

8,443

 

2019

Aerospace & Industrial

 

Laboratory

 

Metal Melt Quality

 

Central

 

Group

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Total segment revenue

64,696

 

43,654

 

39,011

 

-

 

147,361

Inter-segment revenue

(53)

 

(2,374)

 

(2)

 

-

 

(2,429)

Revenue

64,643

 

41,280

 

39,009

 

-

 

144,932

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

 

8,527

 

 

6,597

 

 

2,845

 

 

(2,377)

 

 

15,592

Amortisation of acquired intangibles

 

(337)

 

 

(251)

 

 

-

 

 

-

 

 

(588)

Other acquisition related adjustments

 

-

 

 

36

 

 

-

 

 

(253)

 

 

(217)

Operating profit/(loss)

8,190

 

6,382

 

2,845

 

(2,630)

 

14,787

Interest payable and similar charges

 

-

 

 

-

 

 

-

 

 

(802)

 

 

(802)

Profit/(loss) before income tax

8,190

 

6,382

 

2,845

 

(3,432)

 

13,985

Income tax expense

-

 

-

 

-

 

(3,220)

 

(3,220)

Profit/(loss) for the year

8,190

 

6,382

 

2,845

 

(6,652)

 

10,765

 

 

 

2.  Segment information continued

 

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

 

Segment assets and liabilities

 

At 30 Nov 2020

Aerospace & Industrial

 

Laboratory

 

Metal Melt Quality

 

Central

 

Group

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Segmental assets

73,459

 

42,926

 

30,860

 

2,938

 

150,183

Cash and cash equivalents

 

-

 

 

-

 

 

-

 

 

15,563

 

 

15,563

Total assets

73,459

 

42,926

 

30,860

 

18,501

 

165,746

 

 

 

 

 

 

 

 

 

 

Segmental liabilities

(22,013)

 

(11,875)

 

(5,548)

 

(2,041)

 

(41,477)

Retirement benefit obligations

 

-

 

 

-

 

 

-

 

 

(15,395)

 

 

(15,395)

Bank overdraft and loans

 

-

 

 

-

 

 

-

 

 

(10,682)

 

 

(10,682)

Total liabilities

(22,013)

 

(11,875)

 

(5,548)

 

(28,118)

 

(67,554)

 

At 30 Nov 2019

Aerospace & Industrial

 

Laboratory

 

Metal Melt Quality

 

Central

 

Group

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Segmental assets

73,000

 

38,289

 

31,310

 

2,498

 

145,097

Cash and cash equivalents

 

-

 

 

-

 

 

-

 

 

12,889

 

 

12,889

Total assets

73,000

 

38,289

 

31,310

 

15,387

 

157,986

 

 

 

 

 

 

 

 

 

 

Segmental liabilities

(23,721)

 

(9,653)

 

(4,243)

 

(1,709)

 

(39,326)

Retirement benefit obligations

 

-

 

 

-

 

 

-

 

 

(14,450)

 

 

(14,450)

Bank overdraft and loans

 

-

 

 

-

 

 

-

 

 

(8,875)

 

 

(8,875)

Total liabilities

(23,721)

 

(9,653)

 

(4,243)

 

(25,034)

 

(62,651)

 

Geographical analysis

 

2020

 

2019

 

By destination

£'000

 

By origin

£'000

 

By destination

£'000

 

By origin

£'000

Revenue

 

 

 

 

 

 

 

United Kingdom

13,990

 

41,343

 

16,394

 

50,058

Continental Europe

24,136

 

23,118

 

21,844

 

13,543

United States of America

54,121

 

63,811

 

67,214

 

75,336

Other NAFTA

5,296

 

-

 

2,310

 

-

South America

1,883

 

-

 

2,038

 

-

Asia

34,562

 

6,739

 

33,847

 

5,995

Africa

1,023

 

-

 

1,285

 

-

 

135,011

 

135,011

 

144,932

 

144,932

 

 

 

3.  Earnings per share

 

2020

 

2019

Total

 

 

Earnings

 

 

£'000

Weighted average number of shares

Per share amount

 

(pence)

 

Earnings

 

 

£'000

Weighted average number of shares

Per share amount

 

(pence)

Earnings attributable to ordinary shareholders

 

8,443

 

 

 

 

10,768

 

 

Shares in issue

 

46,171,382

 

 

 

45,871,417

 

Shares owned by the Employee Benefit Trust

 

 

(208,375)

 

 

 

 

(183,308)

 

Basic earnings

8,443

45,963,007

18.4

 

10,768

45,688,109

23.6

Effect of dilutive securities - share options

 

-

 

21,666

 

-

 

 

-

 

47,240

 

(0.1)

Diluted earnings

8,443

45,984,673

18.4

 

10,768

45,735,349

23.5

 

 

2020

 

2019

Adjusted

 

 

Earnings

 

 

£'000

Weighted average number of shares

Per share amount

 

(pence)

 

Earnings

 

 

£'000

Weighted average number of shares

Per share amount

 

(pence)

Earnings attributable to ordinary shareholders

 

8,443

 

 

 

 

10,768

 

 

Adjusting items (note 1)

1,486

 

 

 

805

 

 

Adjusted earnings attributable to ordinary shareholders

 

 

9,929

 

 

 

 

 

11,573

 

 

Adjusted basic earnings

9,929

45,963,007

21.6

 

11,573

45,688,109

25.3

Adjusted diluted earnings

9,929

45,984,673

21.6

 

11,573

45,735,349

25.3

 

4.   Dividends per share

 

2020

 

2019

 

Per share

£'000

 

Per share

£'000

Final dividend paid

3.2p

1,472

 

3.0p

1,368

Interim dividend paid

1.7p

781

 

1.7p

778

 

4.9p

2,253

 

4.7p

2,146

 

The Directors recommend the payment of a final dividend of 3.3 pence per share (2019: 3.2 pence per share) on 4 June 2021 to shareholders on the register on 30 April 2021; the ex-dividend date is 29 April 2021.  This makes a total dividend for the year of 5.0 pence per share (2019: 4.9 pence per share).

 

 

 

5.  Property, plant and equipment

 

 

Land and buildings

 

Assets in the course of construction

 

Plant, machinery and equipment

 

Total

Cost

 

£'000

 

£'000

 

£'000

 

£'000

At 1 December 2019

 

11,937

 

1,388

 

41,809

 

55,134

Reclassification

 

-

 

(981)

 

981

 

-

Additions

 

854

 

466

 

2,138

 

3,458

Disposals

 

-

 

-

 

(1,355)

 

(1,355)

Exchange differences

 

(242)

 

(15)

 

(546)

 

(803)

At 30 November 2020

 

12,549

 

858

 

43,027

 

56,434

 

Depreciation

 

 

 

 

 

 

 

 

At 1 December 2019

 

(3,694)

 

-

 

(28,661)

 

(32,355)

Charge for the year

 

(401)

 

-

 

(2,398)

 

(2,799)

Impairment charge

 

-

 

-

 

(2,261)

 

(2,261)

Disposals

 

-

 

-

 

1,217

 

1,217

Exchange differences

 

73

 

-

 

407

 

480

At 30 November 2020

 

(4,022)

 

-

 

(31,696)

 

(35,718)

 

Net book value

 

 

 

 

 

 

 

 

At 30 November 2020

 

8,527

 

858

 

11,331

 

20,716

At 30 November 2019

 

8,243

 

1,388

 

13,148

 

22,779

 

6.  Right of use assets and lease liabilities

 

 

 

 

Land and buildings

 

Plant, machinery and equipment

 

Total

Cost

 

 

 

£'000

 

£'000

 

£'000

At 30 November 2019

 

 

 

-

 

-

 

-

IFRS 16 transition adjustment

 

 

 

14,055

 

534

 

14,589

At 1 December 2019

 

 

 

14,055

 

534

 

14,589

New leases

 

 

 

5

 

170

 

175

Exit from leases

 

 

 

(44)

 

(69)

 

(113)

Exchange differences

 

 

 

145

 

14

 

159

At 30 November 2020

 

 

 

14,161

 

649

 

14,810

 

Depreciation

 

 

 

 

 

 

 

 

At 1 December 2019

 

 

 

-

 

-

 

-

Charge for the year

 

 

 

(1,876)

 

(179)

 

(2,055)

Exit from leases

 

 

 

-

 

34

 

34

Exchange differences

 

 

 

(24)

 

(3)

 

(27)

At 30 November 2020

 

 

 

(1,900)

 

(148)

 

(2,048)

 

Net book value

 

 

 

 

 

 

 

 

At 30 November 2020

 

 

 

12,261

 

501

 

12,762

At 30 November 2019

 

 

 

-

 

-

 

-

 

 

 

6.  Right of use assets and lease liabilities - continued

Lease liabilities

 

Total

 

 

£'000

At 30 November 2019

 

-

IFRS 16 transition adjustment

 

(15,218)

At 1 December 2019

 

(15,218)

New leases

 

(175)

Exit from leases

 

93

Lease repayments

 

2,297

Interest on lease liabilities

 

(437)

Exchange differences

 

(176)

Net book value at 30 November 2020

 

(13,616)

 

 

 

Repayable within one year

 

(2,007)

Repayable after one year

 

(11,609)

Net book value at 30 November 2020

 

(13,616)

 

7.  Goodwill and other intangible assets

 

 

 

 

Goodwill

 

 

Development expenditure capitalised

 

 

 

Software capitalised

 

Trademarks, knowhow and other intangibles

 

 

 

 

Total

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Net book amount at 1 December 2019

 

65,668

 

 

154

 

 

805

 

 

4,885

 

 

71,512

Additions

-

 

-

 

166

 

-

 

166

Amortisation charges

-

 

(70)

 

(166)

 

(671)

 

(907)

Exchange differences

(797)

 

(2)

 

13

 

54

 

(732)

Net book amount at 30 November 2020

 

64,871

 

 

82

 

 

818

 

 

4,268

 

 

70,039

 

At 30 November 2020

 

 

 

Goodwill

 

 

Development expenditure capitalised

 

 

 

Software capitalised

 

Trademarks, knowhow and other intangibles

 

 

 

 

Total

 

£'000

 

£'000

 

£'000

 

£'000

 

£'000

Cost

83,509

 

894

 

1,803

 

7,484

 

93,690

Accumulated amortisation and impairment

 

 

(18,638)

 

 

 

(812)

 

 

 

(985)

 

 

 

(3,216)

 

 

 

(23,651)

Net book amount

64,871

 

82

 

818

 

4,268

 

70,039

 

 

 

 

8.  Trade and other payables

 

Amounts falling due within one year:

2020

£'000

 

2019

£'000

Trade payables

10,353

 

14,728

Taxation and social security

1,060

 

1,016

Other payables

950

 

897

Accruals and contract liabilities

7,834

 

9,348

At 30 November

20,197

 

25,989

 

9.  Borrowings

On 24 May 2017, the Group agreed a five year revolving credit facility of €23 million (£20 million) with Barclays Bank plc and Handelsbanken plc.  The Group also has a £2.5 million overdraft facility provided by Barclays Bank plc.

In May 2020, the Group received loan proceeds of $1,841,000 from the Truist Bank, North Carolina under the Paycheck Protection Program ("PPP").  The loan bears interest at 1% per annum, with a deferral of payments until the US Small Business Administration, implementing the PPP, has made a final decision on the forgiveness of the loan, as set out in the "Flexibility Act", an amendment to the CARES Act.

At 30 November 2020, the Group had €11.1 million of unused facilities (2019: €13.3 million of unused facilities) and an unutilised overdraft facility of £2.5 million (2019: £2.5 million). 

 

10.  Provisions

 

 

 

 

Dilapidations

 

Warranty

 

Total

 

 

 

 

£'000

 

£'000

 

£'000

At 1 December 2019

 

 

 

242

 

9,526

 

9,768

Charged to the consolidated income statement:

 

 

 

 

 

 

 

 

Unwinding of discount

 

 

 

26

 

-

 

26

Warranty release

 

 

 

-

 

(5,091)

 

(5,091)

Warranty charge

 

 

 

-

 

652

 

652

Utilised:

 

 

 

 

 

 

 

 

Warranty

 

 

 

-

 

(720)

 

(720)

Exchange reserve

 

 

 

-

 

(2)

 

(2)

At 30 November 2020

 

 

 

268

 

4,365

 

4,633

 

 

 

 

 

Dilapidations

 

Warranty

 

Total

 

 

 

 

£'000

 

£'000

 

£'000

At 30 November 2018

 

 

 

219

 

506

 

725

Recognised on adoption of IFRS 15

 

 

 

-

 

8,187

 

8,187

At 1 December 2018

 

 

 

219

 

8,693

 

8,912

Acquired

 

 

 

-

 

136

 

136

Charged to the consolidated income statement:

 

 

 

 

 

 

 

 

Unwinding of discount

 

 

 

23

 

-

 

23

Warranty charge

 

 

 

-

 

801

 

801

Utilised:

 

 

 

 

 

 

 

 

Warranty

 

 

 

-

 

(96)

 

(96)

Exchange reserve

 

 

 

-

 

(8)

 

(8)

At 30 November 2019

 

 

 

242

 

9,526

 

9,768

 

 

2020

 

2019

 

£'000

 

£'000

Current

4,365

 

9,526

Non-current

268

 

242

Net book value at 30 November 2020

4,633

 

9,768

 

Provisions arise from potential claims on major contracts, discounted dilapidations provision for leased property, which is expected to be required in 2023, and sale warranties which expire by 2021.  The amount charged in the year of £652,000 (2019: £801,000) arose on additional sales made in the year.

10.  Provisions - continued

In December 2019, a US$0.9 million (£0.7 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.

 

11.   Share capital and premium

 

 

Number of shares

 

Ordinary shares

 

 

Share premium account

 

Total

 

 

 

Thousands

 

£'000

 

£'000

 

£'000

At 1 December 2019

 

46,041

 

921

 

36,504

 

37,425

Issue of shares on exercise of share options

 

 

115

 

 

2

 

 

423

 

 

425

At 30 November 2020

 

46,156

 

923

 

36,927

 

37,850

 

In February, October and November 2020, 114,501 ordinary shares of 2 pence each were issued on the exercise of Save As You Earn share options for cash consideration of £425,000.

The Group uses an Employee Benefit Trust (EBT) to purchase shares in the Company to satisfy entitlements, granted since the Company's AGM in 2015, under the Group's Long Term Incentive Plan.  The EBT has waived its rights to dividends.  During the year, the Group purchased 120,000 ordinary shares of 2 pence each (2019: 114,000) for a total consideration of £728,000 (2019: £623,000).  During the year the EBT issued 129,700 ordinary shares of 2 pence each (2019: 164,600) to satisfy the exercise of Long Term Share Plan share options. The cost of the shares held by the EBT is deducted from retained earnings.  The EBT is financed by a repayable-on-demand loan from the Group of £2,317,000 (2019: £1,592,000).  As at 30 November 2020, the EBT held a total of 135,700 ordinary shares of 2 pence each (2019: 145,400) at a cost of £772,000 (2019: £773,000) and a market value of £733,000 (2019: £878,000).

 

12.  Deferred and contingent consideration on acquisitions

 

 

 

Rohasys

 

Total

 

 

 

£'000

 

£'000

At 1 December 2019

 

 

948

 

948

Cash paid in the year

 

 

(588)

 

(588)

Release of contingent consideration

 

 

(442)

 

(442)

Release of discount

 

 

43

 

43

Exchange movements

 

 

39

 

39

At 30 November 2020

 

 

-

 

-

 

Included within other payables

2020

£'000

 

2019

£'000

Deferred and contingent consideration - current

-

 

531

Deferred and contingent consideration - non-current

-

 

417

At 30 November

-

 

948

 

 

 

13.  Contingent liabilities

At 30 November 2020, the Group had the following advanced payment bonds (relating to monies received in advance on contracts) and performance bonds:

 

 

 

$'000

 

€'000

Advanced payment bonds

 

 

-

 

162

Performance bonds

 

 

2,549

 

842

At 30 November 2020

 

 

2,549

 

1,004

 

 

 

 

$'000

 

€'000

Performance bonds

 

 

8,534

 

638

At 30 November 2019

 

 

8,534

 

638

 

$2,520,000 (2019: $8,478,000) of the performance bonds relate to the contracts for filtration systems provided for gasification projects.  These projects are being commissioned, a process which is taking several years.  The Group has provided its best estimate of the amount of any potential loss arising from rectification and claims arising on these contracts within the £4.4 million warranty provisions disclosed in note 10.  The maximum potential unprovided exposure under these contracts is limited to £9.7 million.  In December 2019, a $930,000 performance bond was called by a customer, paid and cancelled.  The uncalled performance bonds are expected to be called or released no later than March 2023.

14.  Cash generated from operations

 

 

 

2020

£'000

 

2019

£'000

Operating profit

 

 

12,557

 

14,787

Post-employment benefits

 

 

(1,288)

 

(1,003)

Fair value movement of derivatives through profit and loss

 

 

(10)

 

(52)

IFRS 15 adjustment

 

 

-

 

(88)

Share based payments

 

 

89

 

585

Depreciation and amortisation of property, plant and equipment, and intangibles

 

 

 

3,706

 

 

3,743

Depreciation of right of use assets

 

 

2,055

 

-

Impairment of property, plant and equipment

 

 

2,261

 

-

Loss on disposal of property, plant and equipment and intangibles

 

 

162

 

122

Operating cash flows before movement in working capital

 

 

19,532

 

18,094

Increase in inventories

 

 

(276)

 

(2,351)

Decrease/(increase) in trade and other receivables

 

 

4,139

 

(707)

Decrease in payables

 

 

(5,084)

 

(7,209)

(Decrease)/increase in provisions

 

 

(5,091)

 

8,931

Increase in working capital

 

 

(6,312)

 

(1,336)

Cash generated from operations

 

 

13,220

 

16,758

 

15.  Basis of preparation 

The results for the year ended 30 November 2020 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union as at 30 November 2020.  The financial information contained in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The financial information has been extracted from the financial statements for the year ended 30 November 2020, which have been approved by the Board of Directors and on which the auditors have reported without qualification.  The financial statements will be delivered to the Registrar of Companies after the Annual General Meeting.  The financial statements for the year ended 30 November 2019, upon which the auditors reported without qualification, have been delivered to the Registrar of Companies.

 

 

16.  Annual general meeting

The Company's Annual General Meeting will be held at 11.00 a.m. on Tuesday 20 April 2021 at the offices of Porvair plc, 7 Regis Place, King's Lynn, PE30 2JN.

17.  Related parties

There were no related party transactions in the year ended 30 November 2020 other than Directors' compensation.

18.  Responsibility Statement

Each of the Directors confirms, to the best of their knowledge, that:

· the financial statements, on which this announcement is based, have been prepared in accordance with the applicable law and International Financial Reporting Standards as adopted by the EU and give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

· the review of the business includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

The Directors of Porvair are listed in the Porvair Annual Report for the year ended 30 November 2019, apart from Paul Dean, who retired from the Board on 3 February 2020.  A list of current Directors is maintained on the Porvair website, www.porvair.com.

Copies of full accounts will be sent to shareholders in March 2021.  Additional copies will be available from www.porvair.com. 

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