Half Yearly Results

RNS Number : 1993J

Porvair PLC

27 June 2017

 

For immediate release                                                                                                            27 June 2017

Porvair plc

Half yearly results for the six months ended 31 May 2017

Positive progress

Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its half yearly results for the six months ended 31 May 2017.

·      Highlights:

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

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

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

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

o  Acquisition of J. G. Finneran Associates, Inc. ("JGF").

o  Capital investment of £4.0 million in the period.

·      Microfiltration:

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

o  Aerospace revenue up 19%.

o  Seal Analytical revenue up 16%.

o  Large contracts progressing as planned. 

o  JGF has performed well since acquisition.

o  New manufacturing facility for Seal Analytical in USA opened on schedule and to budget.

o  Capacity investments made for aviation and bioscience in the UK.

·      Metals Filtration:

o  Revenues up 14% (6% at constant currency*).

o  Aluminium filtration revenue strong.

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

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

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

"Porvair has started 2017 well, with a healthy order book going into the second half. Organic growth continues to be driven by incremental new product introductions and capacity expansion. The recent acquisition, JGF, has started well. The Group has a strong balance sheet, a promising project pipeline and sees many opportunities for further growth ahead."

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

For further information please contact:

Porvair plc		020 7466 5000	today
Ben Stocks, Chief Executive		01553 765 500	thereafter
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 27 June 2017 at Buchanan. An audio webcast and a copy of the presentation will be available at www.porvair.com on the day.

Operating review

Overview

	2017		2016		Growth
	£m		£m		%
Revenue	55.5		52.1		7
Profit before tax	4.9		4.5		9
Earnings per share	8.3p		7.5p		11
Net cash	4.0		7.2

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

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

Strategic statement

Porvair's strategy has remained consistent for a number of years. It 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 often designed into a specification and will typically have long life cycles.

Over the last five years the Group has achieved revenue growth of 55% (9% CAGR), earnings per share growth of 108% (16% CAGR) and cash from operations of £62 million. 

Over the same period, £33 million has been invested in capital expenditure and acquisitions. In the last twelve months, the Group's after tax operating profit return on operating capital was 43% (2016: 47%).

Business model outline

Our customers require filtration or emission control products that perform to a given specification. We win business by offering the best technical solutions for these requirements at an acceptable commercial cost. Filtration expertise is applicable across all markets with new products generally being adaptations of existing designs. Experience in particular markets or applications is valuable in building customer confidence. Domain knowledge is important, as is deciding where to direct resources.

This leads us to:

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

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

3.   Make new product development a core business activity.

4.   Establish geographic presence where end-markets require.

5.   Invest in both organic and acquired growth.

Therefore:

·      We focus on four markets: aviation; energy and industrial; laboratories; and molten metals. All have clear structural growth drivers.

·      Our products are specialist in nature and typically protect costly or complex downstream systems. As a result they are replaced regularly.  A high proportion of our annual revenue is from repeat orders.

·      We prioritise new product development in order to generate growth rates in excess of the underlying market.  Where possible we build robust intellectual property around our product developments. About 30% of our revenue is derived from patent protected products.

·      Our geographic presence follows the markets we serve. 51% of revenue is in the Americas, where aviation and metals filtration are strong. 21% of revenue is in Asia, where sales into water analysis markets are growing and the demand for gasification plants is strongest.

·      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.

Operating structure

·      The Group has two divisions.  The Microfiltration division serves the aviation, energy and industrial, and laboratory markets.  The Metals Filtration division focuses on filtration of molten metals, principally aluminium.

·      The acquisition of JGF has increased the Group's activities in the laboratory sector, and the Board is considering managing and reporting these activities in a separate segment in the 2018 financial year.

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

Investment and future development

Since the start of 2014, £27 million has been invested in acquisitions and capacity expansion.  In the first half of 2017:

·      JGF was acquired at the start of April, and has made an excellent start.  Investments will be made to expand the JGF manufacturing footprint; upgrade certain parts of the plant; introduce new machine capacity; and bring in component manufacture for other parts of the Group.

·      A further potential acquisition progressed through due diligence in the period, although ultimately the Board decided not to complete. Costs associated with it have been written off in these results.

·      A new facility for Seal Analytical in the US opened in December 2016, creating additional capacity for manufacturing and product development for this water analysis and laboratory supplies business.

·      A new machining cell for aviation filter manufacture was commissioned in the UK to meet growing demand in that market. This will allow us to offer shorter lead times and better quality control.

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

New product development remains core to Porvair's strategy with incremental range extensions and increasing product differentiation being priorities. In the first half:

·      A new inerting filter for commercial aviation was qualified and went into production.

·      Seal Analytical introduced one new platform and two model upgrades in March. These will go through beta testing during the rest of the year with first commercial orders expected in late 2017.

·      Extensions continue to be added to the microelectronics filter range acquired with TEM Filter Company ("TEM") in 2015. This acquisition continues to trade well.

·      Several smaller product introductions in nuclear, ink jet and bioscience filtration are in final validation and will move into production later in the year.

The general pipeline of new products for 2018 looks promising.

Divisional review

Metals Filtration

	2017		2016		Growth
	£m		£m		%
Revenue	19.1		16.8		14
Operating profit	0.8		1.2		(36)

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

Operating profit fell 36% due to continuing losses in the Chinese start-up.  We expect these to diminish as the plant builds its revenues and we implement our plans to gain production efficiencies, but progress is slower than we would like. There is plenty of evidence that our proposition of a more efficient filter with a less damaging environmental footprint is gaining traction, but in the price conscious Chinese market, sticking to this value proposition is a challenge.  As Chinese aluminium producers raise their quality requirements better quality filtration is expected to be needed.  Our patented filters demonstrably outperform the competition, notably in higher grade alloys.  We are resolved to be patient. 

Microfiltration

	2017		2016		Growth
	£m		£m		%
Revenue	36.4		35.3		3
Operating profit	5.2		4.9		6

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

General levels of demand remain encouraging. Aviation revenues grew 19% with orders for the latest generation of inerting filters starting to ship. Orders in bioscience, industrial process and microelectronics were strong. The Group's patented DNA filtration technology will be supplied under license to a large US molecular biology specialist. 

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

Two months of contribution from JGF were included in these results and trading was ahead of management expectations.  Integration plans are going well.  Opportunities for cross sales are already apparent from a newly combined product offering aimed at chromatography, sample preparation and other environmental laboratory processes.

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

Other Unallocated expenses

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

Interest

The Group incurred an interest charge of £0.3 million (2016: £0.3 million).  £0.2 million (2016: £0.2 million) relates to the finance cost of the defined benefit pension scheme.  The remainder comprises non-utilisation fees and interest on the Group's banking facilities.

Tax

The Group tax charge was £1.1 million (2016: £1.1 million).  This is an effective rate of 23% (2016: 24%), in line with the rate recorded for the full year ended 30 November 2016 and higher than the UK standard corporate tax rate because tax rates are higher on profits made in Germany and the US.

Earnings per share and dividends

The basic earnings per share for the period increased 11% to 8.3 pence (2016: 7.5 pence). 

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

Cash flow and net debt

Cash generated from operations in the six months to 31 May 2017 was £1.6 million (2016: £2.5 million). Working capital increased in the period by £4.6m million (2016: £4.2 million).  Working capital usually increases in the first half, a trend exaggerated by the reversal of working capital benefits from advance payments on the large projects.

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

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

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

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

Banking facilities

On 24 May 2017, the Group agreed a new five year revolving credit facility of €23 million (£20 million) with Barclays Bank plc and Svenska Handelsbanken AB (publ).  The margin on the facility is 1.5% above LIBOR, a significant improvement on the previous terms.  The Group also has a £2.5 million overdraft facility provided by Barclays Bank plc.

Return on capital employed

The Group's return on capital employed was 14% (2016: 15%).  Excluding the impact of goodwill and the pension liability the return on operating capital employed was 43% (2016: 47%).

Current trading and outlook

Porvair has started 2017 well, with a healthy order book going into the second half. Organic growth continues to be driven by incremental new product introductions and capacity expansion. The recent acquisition, JGF, has started well. The Group has a strong balance sheet, a promising project pipeline and sees many opportunities for further growth ahead.

Ben Stocks

Group Chief Executive

26 June 2017

Related parties

There were no related party transactions in the six months ended 31 May 2017 (2016: 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 2016.

Although healthy at 31 May 2017, certain elements of the Group's order position can change quickly in the face of changing economic circumstances.  The Metals Filtration division and environmental laboratory supplies and general industrial filtration within the Microfiltration 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 2017.

Forward looking statements

Certain statements in this half yearly financial information are forward-looking.  Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct.  Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

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

Condensed consolidated income statement

For the six months ended 31 May

			Six months ended 31 May
			2017		2016
	Note		Unaudited		Unaudited
			£'000		£'000
Revenue	1		55,538		52,060
Cost of sales			(37,285)		(35,817)
Gross profit			18,253		16,243
Other operating expenses			(13,051)		(11,489)
Operating profit	1		5,202		4,754
Interest payable and similar charges			(347)		(303)
Profit before income tax			4,855		4,451
Income tax expense			(1,121)		(1,084)
Profit for the period			3,734		3,367
Profit attributable to:
Owners of the parent			3,738		3,367
Non-controlling interests			(4)		-
Profit for the period			3,734		3,367
Earnings per share (basic)	2		8.3p		7.5p
Earnings per share (diluted)	2		8.2p		7.4p

Condensed consolidated statement of comprehensive income

For the six months ended 31 May

	Six months ended 31 May
	2017 Unaudited		2016 Unaudited
	£'000		£'000
Profit for the period	3,734		3,367
Other comprehensive income:
Items that will not be reclassified to profit and loss
Actuarial losses in defined benefit pension plans net of tax	(937)		(442)
Items that may be subsequently reclassified to profit or loss
Exchange differences on translation of foreign subsidiaries	(1,510)		1,727
Changes in the fair value of foreign exchange contracts held as a cash flow hedge, net of tax	157		17
	(1,353)		1,744
Net other comprehensive income	(2,290)		1,302
Total comprehensive income for the period	1,444		4,669
Comprehensive income attributable to:
Owners of the parent	1,448		4,669
Non-controlling interests	(4)		-
Total comprehensive income for the period	1,444		4,669

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

Condensed consolidated balance sheet

As at 31 May

		As at 31 May				As at 30 November
	Note	2017 Unaudited		2016 Unaudited		2016 Audited
		£'000		£'000		£'000
Non-current assets
Property, plant and equipment	4	20,676		16,061		18,102
Goodwill and other intangible assets	4	59,048		47,729		52,578
Deferred tax asset		3,722		2,484		3,291
		83,446		66,274		73,971
Current assets
Inventories		16,745		14,008		15,001
Trade and other receivables		20,765		20,123		18,593
Cash and cash equivalents		11,457		8,318		13,633
		48,967		42,449		47,227
Current liabilities
Trade and other payables		(27,948)		(25,870)		(25,873)
Current tax liabilities		(1,482)		(1,893)		(1,921)
Derivative financial instruments		(523)		(427)		(1,578)
		(29,953)		(28,190)		(29,372)
Net current assets		19,014		14,259		17,855
Non-current liabilities
Bank loans		(7,501)		(1,153)		-
Deferred tax liability		(1,745)		(1,515)		(1,739)
Retirement benefit obligations		(16,605)		(12,420)		(16,117)
Other payables		(2,324)		-		-
Provisions for other liabilities and charges	12	(1,900)		(2,556)		(2,524)
		(30,075)		(17,644)		(20,380)
Net assets		72,385		62,889		71,446
Capital and reserves
Share capital	5	907		902		906
Share premium account	5	35,546		35,359		35,513
Cumulative translation reserve	6	9,439		3,433		10,949
Retained earnings	6	26,458		23,195		24,078
Equity attributable to equity shareholders of the parent		72,350		62,889		71,446
Non-controlling interests		35		-		-
Total equity		72,385		62,889		71,446

The interim financial information on pages 8 to 21 was approved by the Board of Directors on 26 June 2017 and was signed on its behalf by:

Ben Stocks                                                                                                                                          Chris Tyler

Group Chief Executive                                                                                                                        Group Finance Director

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

Condensed consolidated cash flow statement

For the six months ended 31 May

		Six months ended 31 May
	Note	2017 Unaudited		2016 Unaudited
		£'000		£'000
Cash flows from operating activities
Cash generated from operations	7	1,571		2,503
Interest paid		(142)		(80)
Tax paid		(1,310)		(571)
Net cash generated from operating activities		119		1,852
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)	11	(5,465)		(2,930)
Purchase of property, plant and equipment	4	(3,947)		(2,623)
Purchase of intangible assets	4	(65)		(60)
Share capital from non-controlling interests		39		-
Net cash used in investing activities		(9,438)		(5,613)
Cash flows from financing activities
Net proceeds from the issue of ordinary shares	5	34		6
Purchase of Employee Benefit Trust shares		(145)		-
Increase in borrowings	8	7,325		1,113
Net cash generated from financing activities		7,214		1,119
Net decrease in cash and cash equivalents	8	(2,105)		(2,642)
Effects of exchange rate changes		(71)		222
		(2,176)		(2,420)
Cash and cash equivalents at the beginning of the period		13,633		10,738
Cash and cash equivalents at the end of the period		11,457		8,318

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

Condensed consolidated statement of changes in equity

For the six months ended 31 May (Unaudited)

	Share capital £'000	Share premium account £'000	Cumulative translation reserve £'000	Retained earnings £'000	Total £'000
Balance at 1 December 2015	896	35,359	1,706	21,103	59,064
Profit for the period	-	-	-	3,367	3,367
Other comprehensive income for the period:
Exchange differences on translation of foreign subsidiaries	-	-	1,727	-	1,727
Changes in the fair value of foreign exchange contracts held as a cash flow hedge	-	-	-	17	17
Actuarial losses in defined benefit pension plans net of tax	-	-	-	(442)	(442)
Total comprehensive income for the period	-	-	1,727	2,942	4,669
Transactions with owners:
Proceeds from shares issued, net of costs	6	-	-	-	6
Employee share option schemes:
Value of employee services net of tax	-	-	-	143	143
Dividends approved as final or paid	-	-	-	(993)	(993)
Balance at 31 May 2016	902	35,359	3,433	23,195	62,889
Balance at 1 December 2016	906	35,513	10,949	24,078	71,446
Profit for the period	-	-	-	3,738	3,738
Other comprehensive income for the period:
Exchange differences on translation of foreign subsidiaries	-	-	(1,510)	-	(1,510)
Changes in the fair value of foreign exchange contracts held as a cash flow hedge	-	-	-	157	157
Actuarial losses in defined benefit pension plans net of tax	-	-	-	(937)	(937)
Total comprehensive income for the period	-	-	(1,510)	2,958	1,448
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(145)	(145)
Proceeds from shares issued, net of costs	1	33	-	-	34
Employee share option schemes:
Value of employee services net of tax	-	-	-	655	655
Dividends approved as final or paid	-	-	-	(1,088)	(1,088)
Balance at 31 May 2017	907	35,546	9,439	26,458	72,350

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

Notes to the condensed half-yearly consolidated financial information

1.             Segmental analyses

The chief operating decision maker has been identified as the Board of Directors.  The Board of Directors review 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 2017, the Group is organised on a worldwide basis into two operating segments:

1)    Metals Filtration

2)    Microfiltration

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

Six months ended 31 May 2017 - Unaudited		Metals Filtration		Microfiltration		Other unallocated		Group
		£'000		£'000		£'000		£'000
Revenue		19,138		36,400		-		55,538
Operating profit/(loss)		761		5,213		(772)		5,202
Interest payable and similar charges		-		-		(347)		(347)
Profit/(loss) before income tax		761		5,213		(1,119)		4,855
Income tax expense		-		-		(1,121)		(1,121)
Profit/(loss) for the period		761		5,213		(2,240)		3,734

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

Six months ended 31 May 2016 -Unaudited		Metals Filtration		Microfiltration		Other unallocated		Group
		£'000		£'000		£'000		£'000
Revenue		16,752		35,308		-		52,060
Operating profit/(loss)		1,181		4,923		(1,350)		4,754
Interest payable and similar charges		-		-		(303)		(303)
Profit/(loss) before income tax		1,181		4,923		(1,653)		4,451
Income tax expense		-		-		(1,084)		(1,084)
Profit/(loss) for the period		1,181		4,923		(2,737)		3,367

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

Segment assets and liabilities

At 31 May 2017 - Unaudited		Metals Filtration		Microfiltration		Other unallocated		Group
		£'000		£'000		£'000		£'000
Segmental assets		37,147		79,967		3,842		120,956
Cash and cash equivalents		-		-		11,457		11,457
Total assets		37,147		79,967		15,299		132,413
Segmental liabilities		(4,189)		(25,871)		(5,862)		(35,922)
Retirement benefit obligations		-		-		(16,605)		(16,605)
Bank overdraft and loans		-		-		(7,501)		(7,501)
Total liabilities		(4,189)		(25,871)		(29,968)		(60,028)

At 31 May 2016 - Unaudited		Metals Filtration		Microfiltration		Other unallocated		Group
		£'000		£'000		£'000		£'000
Segmental assets		30,595		65,656		4,154		100,405
Cash and cash equivalents		-		-		8,318		8,318
Total assets		30,595		65,656		12,472		108,723
Segmental liabilities		(4,099)		(22,521)		(5,641)		(32,261)
Retirement benefit obligations		-		-		(12,420)		(12,420)
Bank overdraft and loans		-		-		(1,153)		(1,153)
Total liabilities		(4,099)		(22,521)		(19,214)		(45,834)

At 30 November 2016 - Audited		Metals Filtration		Microfiltration		Other unallocated		Group
		£'000		£'000		£'000		£'000
Segmental assets		36,683		65,762		5,120		107,565
Cash and cash equivalents		-		-		13,633		13,633
Total assets		36,683		65,762		18,753		121,198
Segmental liabilities		(4,650)		(22,565)		(6,420)		(33,635)
Retirement benefit obligations		-		-		(16,117)		(16,117)
Total liabilities		(4,650)		(22,565)		(22,537)		(49,752)

Geographical analysis

Revenue

	Six months ended 31 May
	2017 Unaudited			2016 Unaudited
	By destination £'000	By origin £'000		By destination £'000	By origin £'000
United Kingdom	7,514	18,362		8,114	23,049
Continental Europe	7,232	5,245		7,153	4,309
United States of America	24,071	30,400		18,405	23,624
Other NAFTA	4,747	-		3,913	-
South America	596	-		644	-
Asia	10,772	1,531		13,145	1,078
Africa	606	-		686	-
	55,538	55,538		52,060	52,060

2.             Earnings per share

	Six months ended 31 May
	2017 Unaudited				2016 Unaudited
	Earnings £'000	Weighted average number of shares	Per share amount Pence		Earnings £'000	Weighted average number of shares	Per share amount Pence
Basic EPS - Earnings attributable to ordinary shareholders	3,738				3,367
Shares in issue		45,325,567				45,032,387
Shares owned by the Employee Benefit Trust		(17,280)				-
Basic earnings	3,738	45,308,287	8.3		3,367	45,032,387	7.5
Effect of dilutive securities - share options	-	322,906	(0.1)		-	165,612	(0.1)
Diluted EPS	3,738	45,631,193	8.2		3,367	45,197,999	7.4

3.             Dividends per share

	Six months ended 31 May
	2017			2016
	Unaudited			Unaudited
	Per share	£'000		Per share	£'000
Final dividend approved	2.4p	1,088		2.2p	993

The final dividend approved for the year ended 30 November 2016 was paid to shareholders on 2 June 2017.

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

4.             Property, plant and equipment and goodwill and other intangible assets

Six months ended 31 May 2017 - Unaudited		Property, plant and equipment		Goodwill and other intangible assets		Total
		£'000		£'000		£'000
Opening net book amount at 1 December 2016		18,102		52,578		70,680
Additions		3,947		65		4,012
Acquisition		324		7,843		8,167
Depreciation and amortisation		(1,306)		(214)		(1,520)
Exchange movements		(391)		(1,224)		(1,615)
Closing net book amount at 31 May 2017		20,676		59,048		79,724

Six months ended 31 May 2016 - Unaudited		Property, plant and equipment		Goodwill and other intangible assets		Total
		£'000		£'000		£'000
Opening net book amount at 1 December 2015		14,216		43,547		57,763
Additions		2,623		60		2,683
Disposals		44		3,114		3,158
Depreciation and amortisation		(1,044)		(189)		(1,233)
Exchange movements		222		1,197		1,419
Closing net book amount at 31 May 2016		16,061		47,729		63,790

5.             Share capital and premium

		Number of shares (thousands)		Ordinary shares Unaudited		Share premium account Unaudited		Total Unaudited
				£'000		£'000		£'000
At 1 December 2015		44,824		896		35,359		36,255
Employee share options schemes:
Exercise of options under share option schemes		308		6		-		6
At 31 May 2016		45,132		902		35,359		36,261
At 1 December 2016		45,308		906		35,513		36,419
Employee share options schemes:
Exercise of options under share option schemes		36		1		33		34
At 31 May 2017		45,344		907		35,546		36,453

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

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

6.             Other reserves

			Cumulative translation reserve Unaudited		Retained earnings Unaudited
			£'000		£'000
At 1 December 2015			1,706		21,103
Profit for the period attributable to shareholders			-		3,367
Direct to equity:
Final dividends approved			-		(993)
Actuarial loss			-		(539)
Tax on actuarial loss			-		97
Share based payments			-		227
Tax on share based payments			-		(84)
Foreign exchange contract cash flow hedge			-		17
Exchange differences			1,727		-
At 31 May 2016			3,433		23,195
At 1 December 2016			10,949		24,078
Profit for the period attributable to shareholders			-		3,738
Direct to equity:
Final dividends approved			-		(1,088)
Actuarial loss			-		(1,129)
Tax on actuarial loss			-		192
Share based payments			-		251
Tax on share based payments			-		404
Foreign exchange contract cash flow hedge			-		157
Employee Benefit Trust shares			-		(145)
Exchange differences			(1,510)		-
At 31 May 2017			9,439		26,458

7.             Cash generated from operations

		Six months ended 31 May
		2017 Unaudited £'000		2016 Unaudited £'000
Operating profit		5,202		4,754
Non-cash pension charge		141		178
Fair value of derivatives through profit and loss		(898)		290
Share based payments		251		227
Depreciation and amortisation		1,520		1,233
Operating cash flows before movement in working capital		6,216		6,682
Increase in inventories		(840)		(1,283)
Increase in trade and other receivables		(1,421)		(5,044)
(Decrease)/increase in payables		(1,760)		779
(Decrease)/increase in provisions		(624)		1,369
Increase in working capital		(4,645)		(4,179)
Cash generated from operations		1,571		2,503

8.             Reconciliation of net cash flow to movement in net cash

	Six months ended 31 May
	2017 Unaudited £'000		2016 Unaudited £'000
Net decrease in cash and cash equivalents	(2,105)		(2,642)
Effects of exchange rate changes	220		182
Increase in borrowings	(7,325)		(1,113)
Borrowings acquired with acquired subsidiaries	(467)		-
Net cash at the beginning of the period	13,633		10,738
Net cash at the end of the period	3,956		7,165

9.             Acquisition

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

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

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

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

						Total
						£'000
Purchase consideration:
Cash paid						4,781
Contingent consideration						4,821
Total purchase consideration						9,602
Fair value of net assets acquired						(2,391)
Goodwill						7,211

Recognised amounts of identifiable assets acquired and liabilities assumed							Fair value
							£'000
Property plant and equipment							324
Patents							190
Customer list							201
Non-compete agreement							241
Inventory							1,129
Trade receivables							1,069
Other working capital (net)							(296)
Loan							(467)
Net assets acquired							2,391
Purchase consideration settled in cash							4,781
Cash outflow on acquisition							4,781

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

JGF was acquired close to the period end, as a consequence the accounting entries are deemed provisional. The accounting entries for the business combination will be finalised as permitted by IFRS3 para 45 prior to the approval of the Annual Report for the financial year ending 30 November 2017.

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

10.          Contingent liabilities

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

11.          Fair value estimation

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

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

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

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

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

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

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

		Level 1		Level 2		Level 3		Total
		£'000		£'000		£'000		£'000
Financial liabilities at fair value through profit or loss: -       Trading derivatives		-		(523)		-		(523)
Contingent consideration		-		-		(4,648)		(4,648)
At 31 May 2017		-		(523)		(4,648)		(5,171)
Financial liabilities at fair value through profit or loss: -       Trading derivatives		-		(1,421)		-		(1,421)
Deferred consideration		-		-		(696)		(696)
Foreign exchange contracts used for hedging		-		(157)		-		(157)
At 30 November 2016		-		(1,578)		(696)		(2,274)

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

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

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

				J. G. Finneran Associates, Inc.		TEM Filter Company		Total
				£'000		£'000		£'000
At 1 December 2016				-		(696)		(696)
Purchase consideration additions in the period				(9,602)		-		(9,602)
Cash paid in the period				4,781		684		5,465
Recognised in the income statement				-		(20)		(20)
Foreign exchange movement				173		32		205
At 31 May 2017				(4,648)		-		(4,648)

				Fiber Ceramics		TEM Filter Company		Total
				£'000		£'000		£'000
At 1 December 2015				(56)		-		(56)
Purchase consideration additions in the period				-		(3,377)		(3,377)
Cash paid in the period				50		2,880		2,930
Recognised in the income statement				7		-		7
Foreign exchange movement				(1)		(18)		(19)
At 31 May 2016				-		(515)		(515)

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

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

12.          Provisions for other liabilities and charges

				Dilapidations		Warranty		Total
				£'000		£'000		£'000
At 1 December 2016				164		2,360		2,524
Charged to/(released from) the consolidated income statement:
-       Unwinding of discount				7		-		7
-       Warranty				-		(600)		(600)
Utilised:
-       Warranty				-		(31)		(31)
At 31 May 2017				171		1,729		1,900

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

13.          Exchange rates

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

	Average rate to 31 May 17	Average rate to 31 May 16	Closing rate at 31 May 17	Closing rate at 30 Nov 16
	Unaudited	Unaudited	Unaudited	Unaudited
US dollar	1.26	1.45	1.29	1.25
Euro	1.17	1.32	1.15	1.18

14.          Alternative performance measures - Underlying revenue at constant currency estimation

		2017		2016		Growth
Metals Filtration		£m		£m		%
Revenue at constant currency*		17.2		16.3		6
Exchange		1.9		0.5
Revenue as reported		19.1		16.8		14
Microfiltration
Underlying revenue at constant currency*		34.8		30.5		14
Large projects		0.2		6.4
Exchange		1.4		(1.6)
Revenue as reported		36.4		35.3		3
Group
Underlying revenue at constant currency*		52.0		46.8		11
Large projects		0.2		6.4
Exchange		3.3		(1.1)
Revenue as reported		55.5		52.1		7

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

15.          Seasonality

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

16.          Basis of preparation

Porvair plc is a public limited company registered in the UK and listed on the London Stock Exchange.

This unaudited condensed half-yearly consolidated financial information for the six months ended 31 May 2017 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 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.

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

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 2016, with the exception of changes in estimates that are required in determining the provision for income taxes.

After having made appropriate enquiries, including a review of progress against the Group's budget for 2017, its medium term plans and taking into account the banking facilities available until January 2019, 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 does not constitute full accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 November 2016, which were approved by the Board of Directors on 26 January 2017, 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 2016.  There have been no changes in any risk management policies since the year end.

This report will be available at Porvair plc's registered office at 7 Regis Place, Bergen Way, King's Lynn, PE30 2JN and on the Company's website www.porvair.com.

Statement of directors' responsibilities

The Directors confirm that this condensed half-yearly consolidated financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·          an indication of important events that have occurred during the first six months of the year, their impact on the condensed half-yearly consolidated financial information and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·          material related party transactions in the first six months of the year and any material changes in the related party transactions described in the last annual report.

The Directors of Porvair plc are listed in the Porvair plc Annual Report for the year ended 30 November 2016.  A list of current Directors is maintained on the Porvair plc website www.porvair.com.

By order of the board

Ben Stocks 

Group Chief Executive

Chris Tyler

Group Finance Director

26 June 2017

INDEPENDENT REVIEW REPORT TO PORVAIR PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 May 2017 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 16. 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 16, 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 2017 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 2017

 

END

 

 

IR FFMITMBATBAR