Half Year Results 2022

RNS Number : 1041R

Porvair PLC

04 July 2022

 

For immediate release  4 July 2022

Porvair plc

Interim results for the six months ended 31 May 2022

Porvair plc ("Porvair" or "the Group"), the specialist filtration, laboratory and environmental technology group, announces its interim results for the six months ended 31 May 2022 ("H1 2022" or the "period").

Highlights:

· Revenue 18% higher at £82.3 million (2021: £69.7 million), 16% higher on a constant currency basis*.

· Operating profit 9% higher at £10.1 million (2021: £9.3 million). 

· Adjusted operating profit* 14% higher at £10.4 million (2021: £9.1 million).

· Profit before tax 7% higher at £9.5 million (2021: £8.9 million).

· Adjusted profit before tax* 14% higher at £9.8 million (2021: £8.6 million).

· Adjusted basic earnings per share* were 16.6 pence (2021: 14.8 pence).

· Basic earnings per share were 16.1 pence (2021: 16.4 pence, flattered by adjusting items. See note 1) .  

· Net cash was £12.2 million (31 May 2021: £6.2 million; 30 November 2021: £10.2 million) after investing £2.3 million (2021: £2.0 million) in capital expenditure.

· Interim dividend increased 0.1 pence per share to 1.9 pence (2021: 1.8 pence).

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

"This is a record set of Interim results with growth in all three divisions, showing that the Group is performing well and has managed wide-spread supply dislocation and inflationary pressures satisfactorily thus far. Porvair remains well positioned to address long-term global growth trends: tightening environmental regulations; growth in analytical science; the need for clean water; carbon-efficient transportation; the replacement of plastic and steel with aluminium; and the drive for manufacturing process quality and efficiency.

The strong current order book is flattered in places by extended lead times, but the underlying order position remains healthy, with aerospace and laboratory demand notably stronger than one year ago. The focus for the coming months is on margins. The Group will continue to pass on cost increases where necessary and has accelerated investments in productivity. 2022 has started strongly and provided economic conditions allow the outlook for the balance of the year is promising."

*See notes 1, 2 and 3 for definitions and reconciliations.

For further information please contact:

Porvair plc		01553 765 500
Ben Stocks, Chief Executive
James Mills, Group Finance Director
Buchanan Communications		020 7466 5000
Charles Ryland / Steph Whitmore / George Cleary

An analyst briefing will take place at 9:30 a.m. on Monday 4 July 2022, please contact Buchanan if you wish to join. An audiocast of the meeting and the presentation will subsequently be made available at www.porvair.com

Operating review

The last twelve months have seen revenue and earnings growth despite headwinds from supply-side challenges and inflationary pressures. At the start of 2022, supply chain dislocation had started to ease somewhat, but inflationary pressure continued to build and war in Europe, along with renewed covid outbreaks in China, increased volatility. While the Group has navigated these issues satisfactorily thus far, we remain vigilant and expect inflationary and supply problems to persist well into 2023.

Despite these conditions the Group delivered revenue growth of 18% in the first half of 2022, with all three divisions contributing. Excluding currency and acquisitions, revenue growth was 15%. This was in part driven by strong order books through the period, and in part due to price increases implemented over the last year. Laboratory demand was expected to settle as the direct effects of the pandemic eased, but this has not noticeably been the case yet. The aerospace forward orderbook is better than it has been since 2019. Aluminium production is also robust.

In inflationary times the management of margin is critical. We pass on direct cost increases and have stepped up investments aimed at productivity and automation. Porvair's devolved management structure is helpful in these conditions with key cost, price and inventory decisions made close to the market.

Financial summary

	H1 2022		H1 2021		Growth
	£m		£m		%
Revenue	82.3		69.7		18
Operating profit	10.1		9.3		9
Adjusted operating profit*	10.4		9.1		14
Profit before tax	9.5		8.9		7
Adjusted profit before tax*	9.8		8.6		14
	Pence		Pence
Earnings per share	16.1		16.4		(2)
Adjusted earnings per share*	16.6		14.8		12
	£m		£m
Cash generated from operations	7.2		6.1
Net cash (excluding lease liabilities)	12.2		6.2

*See notes 1, 2 and 3 for definitions and reconciliations.

Revenue was 18% higher (16% at constant currency).  Operating profit was 9% higher at £10.1 million.  Profit before tax increased by 7%.  Adjusted earnings per share increased 12% to 16.6 pence.  Net cash at 31 May 2022 was £12.2 million.

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%	9%
Earnings per share growth	8%		12%	10%
Adjusted earnings per share growth	9%		12%	10%
	£m		£m	£m
Cash from operations	81.9		141.8	175.7
Investment in acquisitions and capital expenditure	43.1		76.6	93.9

* Compound annual growth rate

Porvair's strategy and purpose has remained consistent for over 17 years, a period that now encompasses two recessions, a pandemic, and many years of growth.  This longer-term growth record gives the Board confidence in the Group's capabilities and is the basis for longer-term capital allocation and planning decisions.

Strategic statement and business model

Porvair's strategic purpose is the development of specialist filtration, laboratory and environmental technology businesses for the benefit of all stakeholders.  Principal measures of success include consistent earnings growth and selected ESG measures.  The Group publishes a full ESG report at the time of the annual Final Results.

The Group is positioned to benefit from global trends: tightening environmental regulations; growth in analytical science; the need for clean water; carbon-efficient transportation; the replacement of plastic and steel by aluminium; and the drive for manufacturing process quality and efficiency.

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 complex 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, 49% of revenue was in the Americas; 18% in Asia; 22% in Continental Europe; and 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, 51% of revenue was manufactured in the US; 30% in the UK; 15% in Continental Europe; and 4% 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 have made several acquisitions.  All investments are subject to a hurdle rate analysis based on strategic and financial priorities.

Environmental, Social and Governance ('ESG')

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 safety and 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 was published in February 2022 setting out the Group's ESG management framework and goals. This will be updated in February 2023.

Divisional review

Aerospace & Industrial

	H1 2022		H1 2021		Growth
	£m		£m		%
Revenue	30.7		26.0		18
Operating profit	2.9		2.1		38
Adjusted operating profit*	3.1		2.5		24

*See notes 1, 2 and 3 for definitions and reconciliations.

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

Revenue in the period increased by 18%. Aerospace revenues increased for the first time since 2019 and the forward order book is returning to more normal levels. We have used the pandemic-induced quieter period since 2020 to invest in automation and productivity and the benefits of this are starting to materialise as aerospace volume returns. Industrial filtration has started 2022 well. Timing of certain petrochemical contracts has drifted but this has been balanced by strong demand in general industrial filtration in both the US and Europe. Microelectronics continues to grow. With better aerospace volumes, adjusted margins are higher in 2022 at 10.1%.

Laboratory

		H1 2022		H1 2021		Growth
		£m		£m		%
Revenue		30.8		25.2		22
Operating profit		5.9		4.9		20
Adjusted operating profit*		6.1		4.8		27

*See notes 1, 2 and 3 for definitions and reconciliations.

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

· Porvair Sciences manufactures laboratory filters, small instruments 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 grew by 22% in the period, or 19% excluding acquisitions. Demand for laboratory consumables remained robust, while demand for covid-related components fell, but by less than expected. Seal Analytical sales were up 18%.

The division continues to perform strongly, driven by the global expansion in diagnostic, analytic and environmental laboratory capacity. The Group's expertise is in sample preparation products, chromatography consumables and clean water analysis. Investment has been made in expanding capacity, improving sales channels and accelerating new product development. Seal Analytical has a good record of product introductions.  Its latest analyser, which incorporates robotic handling capability, has secured its first sales in 2022. Adjusted operating margins in the division were steady at 19.8%.

Metal Melt Quality

	H1 2022		H1 2021		Growth
	£m		£m		%
Revenue	20.8		18.4		13
Operating profit	2.8		3.6		(22)
Adjusted operating profit*	2.8		3.0		(7)

*See notes 1, 2 and 3 for definitions and reconciliations.

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 grew by 13%, helped by a partial recovery of aerospace-related filters. Aluminium demand in 2022 has been robust, driven by the switch from plastic to recyclable aluminium in beverage packaging and the higher proportion of aluminium used in electric and hybrid vehicles.

As outlined this time last year, adjusted margins in H1 2021 (16.3%) were flattered by lower sales and marketing costs. The Board notes that the 13.5% adjusted operating margin recorded in H1 2022 is good relative to historic averages and is driven by operational efficiency, productivity investments, and active management of cost and price issues.

Alternative performance measures

	H1 2022		H1 2021		Growth
	£m		£m		%
Adjusted operating profit	10.4		9.1		14
Adjusted profit before tax	9.8		8.6		14
Adjusted profit after tax	7.6		6.8		12

The Group presents alternative performance measures to enable a better understanding of its trading performance.   Adjusted operating profit and adjusted profit before tax exclude items that are considered significant and where treatment as an adjusting item provides a more consistent assessment of the Group's trading.   Adjusted operating profit excludes a £0.3 million charge for the amortisation of acquired intangible assets (2021: £0.3 million of net income) from operating profit.  The details of these adjustments are set out in note 1. 

Finance costs

The Group incurred an interest charge of £0.6 million (2021: £0.5 million): £0.1 million (2021: £0.2 million) relates to the finance cost of the defined benefit pension scheme; £0.2 million (2021: £0.2 million) relates to the interest charge on lease liabilities; and £0.1 million (2021: £0.1 million) relates to the cost of unwinding discounts on provisions and other payables.  The remainder comprises undrawn commitment fees and interest on the Group's banking facilities.

Tax

The Group tax charge was £2.1 million (2021: £1.3 million), including the tax effect of adjusting items (see note 1).  The adjusted income tax expense was £2.2 million (2021: £1.8 million), with the underlying rate of income tax for the period on adjusted measures being 22% (2021: 21%).

Earnings per share and dividends

The basic earnings per share for the period was 16.1 pence (2021: 16.4 pence).  Adjusted earnings per share was 16.6 pence (2021: 14.8 pence). 

The Board has declared an interim dividend of 1.9 pence (2021: 1.8 pence) per share.

Investment

In the last five years, £ 43.1 million has been invested in acquisitions and capacity expansion.  The Group invested £2.3 million in capital expenditure in the first half of 2022 (2021: £2.0 million).

Cash flow, cash and net debt

Cash generated from operations in the six months to 31 May 2022 was £ 7.2 million (2021: £6.1 million).  The Group normally sees an outflow of working capital in the first half of the year.  Working capital increased by £4.9 million (2021: £3.8 million) in the period. 

Net cash at 31 May 2022 was £12.2 million (31 May 2021: £6.2 million; 30 November 2021: £10.2 million).  Lease liabilities were £ 11.5 million (31 May 2021: £12.8 million; 30 November 2021: £12.2 million). 

Provisions and contingent liabilities

The Group has £4.5 million (30 November 2021: £4.7 million) of provisions for dilapidations and warranty risks.

The Group has outstanding performance bonds with customers at 31 May 2022 of $2.5 million (30 November 2021: $2.5 million) and €0.4 million (30 November 2021: €0.8 million).

Return on capital employed

The Group's return on capital employed was 13% (2021: 11%).  Excluding the impact of goodwill and the pension deficit, the return on operating capital employed was 33% (2021: 29%).

Outlook

While the Group has managed supply dislocation and inflationary pressure satisfactorily thus far, both are expected to persist for the rest of 2022. Longer-term, Porvair remains well positioned to address global growth trends: tightening environmental regulations; growth in analytical science; the need for clean water; carbon-efficient transportation; the replacement of plastic and steel by aluminium; and the drive for manufacturing process quality and efficiency.

The strong current order book is flattered in places by extended lead times, but the underlying order position remains healthy, with aerospace and laboratory demand notably stronger than one year ago. The focus for the coming months is on margins. The Group will continue to pass on cost increases where necessary and has accelerated investments in productivity. 2022 has started strongly and provided economic conditions allow the outlook for the balance of the year is promising.

Ben Stocks

Group Chief Executive

1 July 2022

Related parties

Other than remuneration of key management personnel, there were no related party transactions in the six months ended 31 May 2022 (2021: 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.  Further details of the Group's risk profile analysis can be found in the Strategic Report section of the Annual Report & Accounts for the year ended 30 November 2021.

Certain elements of the Group's order position can change quickly in the face of changing economic circumstances.  The Metal Melt Quality division, Laboratory division and general industrial filtration within the Aerospace & Industrial division all have relatively short lead times and order cycles and, therefore, revenue is subject to fluctuations which could have a material effect on the Group's results for the balance of 2022. 

Forward-looking statements

Certain statements in this interim 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
			2022		2021
	Note		Unaudited		Unaudited
			£'000		£'000
Revenue	1,2		82,280		69,654
Cost of sales			(55,018)		(46,759)
Gross profit			27,262		22,895
Other operating expenses			(17,185)		(13,566)
Adjusted operating profit	1,2		10,412		9,066
Adjustments:
Amortisation of acquired intangible assets			(335)		(402)
Other acquisition-related adjustments			-		(80)
Impairment of assets and restructuring costs			-		(592)
Paycheck Protection Program			-		1,337
Operating profit	1,2		10,077		9,329
Finance costs			(566)		(479)
Profit before tax			9,511		8,850
Adjusted income tax expense			(2,202)		(1,768)
Adjustments:
Tax effect of adjustments to operating profit	1		67		472
Income tax expense			(2,135)		(1,296)
Profit for the period			7,376		7,554
Earnings per share (basic)	3		16.1p		16.4p
Earnings per share (diluted)	3		16.1p		16.4p
Adjusted earnings per share (basic)	3		16.6p		14.8p
Adjusted earnings per share (diluted)	3		16.6p		14.8p

Condensed consolidated statement of comprehensive income

For the six months ended 31 May

		Six months ended 31 May
		2022 Unaudited £'000		2021 Unaudited £'000
	Note
Profit for the period		7,376			7,554
Other comprehensive income/(expense)
Items that will not be reclassified to profit and loss:
Actuarial gain in defined benefit pension plans net of tax	9	3,037			2,515
Items that may be subsequently reclassified to profit or loss:
Exchange gain/(loss) on translation of foreign subsidiaries		3,329			(4,301)
Total other comprehensive income/(expense) for the period		6,366			(1,786)
Total comprehensive income for the period		13,742			5,768

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	2022 Unaudited		2021 Unaudited		2021 Audited
		£'000		£'000		£'000
Non-current assets
Property, plant and equipment		22,705		20,427		21,235
Right-of-use assets		10,207		11,878		11,014
Goodwill and other intangible assets		75,630		71,962		74,103
Deferred tax asset		342		1,257		1,821
		108,884		105,524		108,173
Current assets
Inventories		28,266		24,418		24,650
Trade and other receivables		28,109		22,428		21,344
Derivative financial instruments		-		214		-
Cash and cash equivalents		15,988		15,501		15,442
		72,363		62,561		61,436
Current liabilities
Trade and other payables		(28,478)		(23,429)		(21,702)
Current tax liabilities		(1,246)		(469)		(853)
Borrowings		-		(1,796)		-
Lease liabilities		(2,097)		(2,071)		(2,207)
Derivative financial instruments		(269)		-		(20)
Provisions	8	(4,177)		(3,884)		(4,372)
		(36,267)		(31,649)		(29,154)
Net current assets		36,096		30,912		32,282
Non-current liabilities
Borrowings		(3,754)		(7,553)		(5,217)
Deferred tax liability		(2,472)		(2,835)		(2,425)
Retirement benefit obligations	9	(7,102)		(10,871)		(12,602)
Other payables		(900)		(1,900)		(945)
Lease liabilities		(9,395)		(10,682)		(10,024)
Provisions	8	(312)		(282)		(296)
		(23,935)		(34,123)		(31,509)
Net assets		121,045		102,313		108,946
Capital and reserves
Share capital		924		923		924
Share premium account		37,078		36,981		37,078
Cumulative translation reserve		10,986		3,344		7,657
Retained earnings		72,057		61,065		63,287
Equity attributable to owners of the parent		121,045		102,313		108,946

The interim financial information was approved by the Board of Directors on 1 July 2022 and was signed on its behalf by:

Ben Stocks   James Mills

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	2022 Unaudited		2021 Unaudited
		£'000		£'000
Cash flows from operating activities
Cash generated from operations	5	7,239		6,078
Interest paid		(194)		(138)
Tax paid		(1,400)		(916)
Net cash generated from operating activities		5,645		5,024
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)		-		(1,694)
Purchase of property, plant and equipment		(2,310)		(1,987)
Purchase of intangible assets		(43)		(14)
Proceeds from sale of property, plant and equipment		16		-
Net cash used in investing activities		(2,337)		(3,695)
Cash flows from financing activities
Net proceeds from the issue of ordinary shares		-		54
Purchase of Employee Benefit Trust shares		(406)		(332)
(Decrease)/increase in borrowings	6	(1,350)		434
Repayment of lease liabilities		(1,208)		(1,137)
Net cash used in financing activities		(2,964)		(981)
Net increase in cash and cash equivalents	6	344		348
Exchange gains/(losses) on cash and cash equivalents		202		(410)
		546		(62)
Cash and cash equivalents at the beginning of the period		15,442		15,563
Cash and cash equivalents at the end of the period		15,988		15,501

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 2020	923	36,927	7,645	52,697	98,192
Profit for the period	-	-	-	7,554	7,554
Other comprehensive income/(expense)	-	-	(4,301)	2,515	(1,786)
Total comprehensive income for the period	-	-	(4,301)	10,069	5,768
Purchase of own shares (held in trust)	-	-	-	(332)	(332)
Issue of ordinary share capital	-	54	-	-	54
Employee share option schemes	-	-	-	148	148
Ordinary share dividends	-	-	-	(1,517)	(1,517)
Balance at 31 May 2021	923	36,981	3,344	61,065	102,313

	Share capital £'000	Share premium account £'000	Cumulative translation reserve £'000	Retained earnings £'000	Total £'000
Balance at 1 December 2021	924	37,078	7,657	63,287	108,946
Profit for the period	-	-	-	7,376	7,376
Other comprehensive income	-	-	3,329	3,037	6,366
Total comprehensive income for the period	-	-	3,329	10,413	13,742
Purchase of own shares (held in trust)	-	-	-	(406)	(406)
Employee share option schemes	-	-	-	369	369
Ordinary share dividends	-	-	-	(1,606)	(1,606)
Balance at 31 May 2022	924	37,078	10,986	72,057	121,045

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

Notes to the condensed interim consolidated financial information

1.  Alternative performance measures

Alternative performance measures are used by the Directors and management to monitor business performance internally and exclude certain cash and non-cash items which they believe are not reflective of the normal course of business of the Group. The Directors believe that disclosing such non-IFRS measures enables a reader to isolate and evaluate the impact of such items on results and allows for a fuller understanding of performance from year to year. Alternative performance measures may not be directly comparable with other similarly titled measures used by other companies.

Alternative revenue measures

		Six months ended 31 May
		2022		2021		Growth
Aerospace & Industrial		£'000		£'000		%
Revenue at constant currency		29,971		25,564		17
Exchange		714		481
Revenue as reported		30,685		26,045		18
Laboratory
Underlying revenue		26,371		22,504		17
Acquisitions		3,469		2,296
Revenue at constant currency		29,840		24,800		20
Exchange		935		445
Revenue as reported		30,775		25,245		22
Metal Melt Quality
Revenue at constant currency		19,355		17,841		8
Exchange		1,465		523
Revenue as reported		20,820		18,364		13
Group
Underlying revenue		75,697		65,909		15
Acquisitions		3,469		2,296
Revenue at constant currency		79,166		68,205		16
Exchange		3,114		1,449
Revenue as reported		82,280		69,654		18

Revenue at constant currency is derived from translating overseas subsidiaries results at budgeted fixed exchange rates.  In 2022 and 2021, the rates used were $1.40:£1 and €1.20:£1, compared with reported rates of $1.31:£1 (2021: $1.38:£1) and €1.19:£1 (2021: €1.14:£1).

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

Alternative profit measures

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

			H1 2022				H1 2021
		Adjusted	Adjustments	Reported		Adjusted	Adjustments	Reported
		£'000	£'000	£'000		£'000	£'000	£'000
Operating profit		10,412	(335)	10,077		9,066	263	9,329
Finance costs		(566)	-	(566)		(479)	-	(479)
Profit before tax		9,846	(335)	9,511		8,587	263	8,850
Income tax expense		(2,202)	67	(2,135)		(1,768)	472	(1,296)
Profit for the period		7,644	(268)	7,376		6,819	735	7,554

An analysis of adjusting items is given below:

	2022		2021
Affecting operating profit	£'000		£'000
Amortisation of acquired intangible assets	(335)		(402)
Other acquisition-related adjustments	-		(80)
Impairment of assets and restructuring costs	-		(592)
Paycheck Protection Program	-		1,337
	(335)		263
Affecting tax
Tax effect of adjustments to operating profit	67		472
Total adjusting items	(268)		735

Adjusted operating profit excludes:

· The amortisation of intangible assets arising on acquisition of businesses of £0.3 million (2021: £0.4 million);

· Other acquisition-related costs of £nil (2021: £0.1 million in relation to the acquisition of Kbio);

· Covid-19 related impairment of assets and restructuring costs of £nil (2021: £0.6 million, principally within the Aerospace & Industrial division); and

· Monies received under the US Paycheck Protection Program of £nil (2021: £1.3 million, for proceeds received in relation to eligible costs incurred within the US operations during the covid pandemic, as disclosed in the Annual Report & Accounts for the year ended 30 November 2021 ).

The 2021 tax effect of adjustments to operating profit includes a credit in relation to eligible costs incurred in the prior year, associated with the US Paycheck Protection Program and previously treated as disallowed for tax.  The £1.3 million Paycheck Protection Program income in 2021 does not attract US tax.  These items combined contribute to the tax credit on net adjusting items. 

2.  Segmental information

The chief operating decision maker has been identified as the Board of Directors.  The Board of Directors has instructed the Group's internal reporting to be based around differences in products and services, in order to assess performance and allocate resources.  Management has determined the operating segments based on this reporting.

As at 31 May 2022, the Group is organised on a worldwide basis into three operating segments:

1)  Aerospace & Industrial - principally serving the aviation, and energy and industrial markets;

2)  Laboratory - principally serving the bioscience and environmental laboratory instrument and consumables market; and

3)  Metal Melt Quality - principally serving the global aluminium, North American Free Trade Agreement (NAFTA) iron foundry and super-alloys markets.

Other Group operations' costs, assets and liabilities are included in the "Central" division.  Central costs mainly comprise Group corporate costs, including new business development costs, some research and development costs and general financial costs.  Central assets and liabilities mainly comprise Group retirement benefit obligations, tax assets and liabilities, cash and borrowings. 

The segment results for the period ended 31 May 2022 are as follows:

2022 - Unaudited	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	30,769		31,797		20,820		-		83,386
Inter-segment revenue	(84)		(1,022)		-		-		(1,106)
Revenue	30,685		30,775		20,820		-		82,280
Adjusted operating profit/(loss)	3,091		6,064		2,782		(1,525)		10,412
Amortisation of acquired intangible assets	(182)		(153)		-		-		(335)
Operating profit/(loss)	2,909		5,911		2,782		(1,525)		10,077
Finance costs	-		-		-		(566)		(566)
Profit/(loss) before tax	2,909		5,911		2,782		(2,091)		9,511

The segment results for the period ended 31 May 2021 are as follows:

2021 - Unaudited	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	26,126		26,156		18,364		-		70,646
Inter-segment revenue	(81)		(911)		-		-		(992)
Revenue	26,045		25,245		18,364		-		69,654
Adjusted operating profit/(loss)	2,455		4,753		2,994		(1,136)		9,066
Amortisation of acquired intangible assets	(211)		(191)		-		-		(402)
Other acquisition-related adjustments	-		-		-		(80)		(80)
Impairment of assets and restructuring	(592)		-		-		-		(592)
Paycheck Protection Program	407		295		635		-		1,337
Operating profit/(loss)	2,059		4,857		3,629		(1,216)		9,329
Finance costs	-		-		-		(479)		(479)
Profit/(loss) before tax	2,059		4,857		3,629		(1,695)		8,850

The segment assets and liabilities at 31 May 2022 are as follows:

At 31 May 2022 - Unaudited	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	77,124		57,114		30,777		244		165,259
Cash and cash equivalents	-		-		-		15,988		15,988
Total assets	77,124		57,114		30,777		16,232		181,247
Segmental liabilities	(20,481)		(15,358)		(7,015)		(6,492)		(49,346)
Retirement benefit obligations	-		-		-		(7,102)		(7,102)
Borrowings	-		-		-		(3,754)		(3,754)
Total liabilities	(20,481)		(15,358)		(7,015)		(17,348)		(60,202)

The segment assets and liabilities at 31 May 2021 are as follows:

At 31 May 2021 - Unaudited	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	72,098		51,639		26,542		2,305		152,584
Cash and cash equivalents	-		-		-		15,501		15,501
Total assets	72,098		51,639		26,542		17,806		168,085
Segmental liabilities	(18,434)		(15,983)		(5,226)		(5,909)		(45,552)
Retirement benefit obligations	-		-		-		(10,871)		(10,871)
Borrowings	-		-		-		(9,349)		(9,349)
Total liabilities	(18,434)		(15,983)		(5,226)		(26,129)		(65,772)

The segment assets and liabilities at 30 November 2021 are as follows:

At 30 November 2021 - Audited	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	70,038		51,720		30,087		2,322		154,167
Cash and cash equivalents	-		-		-		15,442		15,442
Total assets	70,038		51,720		30,087		17,764		169,609
Segmental liabilities	(19,242)		(12,675)		(5,747)		(5,180)		(42,844)
Retirement benefit obligations	-		-		-		(12,602)		(12,602)
Borrowings	-		-		-		(5,217)		(5,217)
Total liabilities	(19,242)		(12,675)		(5,747)		(22,999)		(60,663)

Geographical analysis

	Six months ended 31 May
	2022 Unaudited			2021 Unaudited
Revenue	By destination £'000	By origin £'000		By destination £'000	By origin £'000
United Kingdom	8,735	25,794		6,717	19,840
Continental Europe	18,961	10,146		15,693	12,447
United States of America	37,171	43,961		29,949	34,550
Other NAFTA	1,734	-		1,529	-
South America	987	-		882	-
Asia	13,558	2,379		14,312	2,817
Africa	1,134	-		572	-
	82,280	82,280		69,654	69,654

3.  Earnings per share (EPS)

	Six months ended 31 May
	2022 Unaudited				2021 Unaudited
As reported	Earnings £'000	Weighted average number of shares	Per share amount Pence		Earnings £'000	Weighted average number of shares	Per share amount Pence
Profit for the period - attributable to owners of the parent	7,376				7,554
Shares in issue		46,201,685				46,162,623
Shares owned by the Employee Benefit Trust		(289,162)				(167,788)
Basic EPS	7,376	45,912,523	16.1		7,554	45,994,835	16.4
Dilutive share options outstanding	-	42,640	-		-	20,457	-
Diluted EPS	7,376	45,955,163	16.1		7,554	46,015,292	16.4

In addition to the above, the Group also calculates an earnings per share based on adjusted profit as the Board believes this to be a better measure to judge the progress of the Group, as discussed in note 1.

	Six months ended 31 May
	2022				2021
Adjusted	Earnings £'000	Unaudited Weighted average number of shares	Per share amount Pence		Earnings £'000	Unaudited Weighted average number of shares	Per share amount Pence
Profit for the period - attributable to owners of the parent	7,376				7,554
Adjusting items (note 1)	268				(735)
Adjusted profit attributable to owners of the parent	7,644				6,819
Adjusted basic EPS	7,644	45,912,523	16.6		6,819	45,994,835	14.8
Adjusted diluted EPS	7,644	45,955,163	16.6		6,819	46,015,292	14.8

4.   Dividends per share

	Six months ended 31 May
	2022			2021
	Unaudited			Unaudited
	Per share	£'000		Per share	£'000
Final dividend approved	3.5p	1,606		3.3p	1,517

The final dividend approved for the year ended 30 November 2021 was paid to shareholders on 1 June 2022.

The Directors have declared an interim dividend of 1.9 pence (2021: 1.8 pence) per share to be paid on 26 August 2022 to shareholders on the register at the close of business on 22 July 2022; the ex-dividend date is 21 July 2022.

5.  Cash generated from operations

		Six months ended 31 May
		2022 Unaudited £'000		2021 Unaudited £'000
Operating profit		10,077		9,329
Adjustments for:
Post-employment benefits		(1,541)		(1,459)
Paycheck Protection Program loan waiver		-		(1,337)
Fair value movement of derivatives through profit and loss		249		(191)
Share-based payments		387		306
Depreciation of property, plant and equipment and amortisation of intangibles		1,862		1,938
Impairment of property plant and equipment		-		270
Depreciation of right-of-use assets		1,098		979
Loss on disposal of property, plant and equipment		23		-
Operating cash flows before movement in working capital		12,155		9,835
Increase in inventories		(3,044)		(1,019)
Increase in trade and other receivables		(6,162)		(1,400)
Increase/(decrease) in trade and other payables		4,582		(857)
Decrease in provisions		(292)		(481)
Increase in working capital		(4,916)		(3,757)
Cash generated from operations		7,239		6,078

6.  Reconciliation of net cash flow to movement in net debt

	Six months ended 31 May
	2022 Unaudited £'000		2021 Unaudited £'000
Net debt at the beginning of the period	(2,006)		(8,735)
Increase in cash and cash equivalents	344		348
Decrease/(increase) in borrowings	1,350		(434)
Decrease in lease liabilities	878		416
Paycheck Protection Program loan waiver	-		1,337
Effects of exchange rate changes	176		467
Net cash/(debt) at the end of the period	742		(6,601)

Net cash and bank debt	12,234		6,152
Lease liabilities	(11,492)		(12,753)
Net cash/(debt) at the end of the period	742		(6,601)

7.   Contingent liabilities

At 31 May 2022, the Group has performance bonds totalling US$2.5 million and €0.4 million (30 November 2021: US$2.5 million and €0.8 million).  The uncalled performance bonds are expected to be called or released no later than December 2024.

8.   Provisions

				Dilapidations £'000		Warranty £'000		Total £'000
At 1 December 2021				296		4,372		4,668
Utilisation of provision				-		(38)		(38)
Release of provision				-		(164)		(164)
Unwinding of discount				16		-		16
Exchange difference				-		7		7
At 31 May 2022				312		4,177		4,489

				Dilapidations £'000		Warranty £'000		Total £'000
At 1 December 2020				268		4,365		4,633
Utilisation of provision				-		(399)		(399)
Release of provision				-		(82)		(82)
Unwinding of discount				14		-		14
At 31 May 2021				282		3,884		4,166

Provisions arise from potential claims on major contracts, sale warranties, and discounted dilapidations for leased property.  Matters that could affect the timing, quantum and extent to which provisions are utilised or released, include the impact of any remedial work, claims against outstanding performance bonds, and the demonstrated life of the filtration equipment installed. 

9.  Pension schemes

The Group supports its defined benefit pension scheme in the UK, which is closed to new members, and provides access to defined contribution schemes for its other employees.  The Group's net retirement benefit obligation at 31 May 2022, measured in accordance with IAS 19 Employee Benefits , was £7.1 million (30 November 2021: £12.6 million).  An actuarial gain in the period of £3.0 million, net of tax, was recognised in the condensed statement of comprehensive income, resulting primarily from an increase in the discount rate.

10.  Exchange rates

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

	Average rate to 31 May 22	Average rate to 31 May 21	Closing rate at 31 May 22	Closing rate at 30 Nov 21
	Unaudited	Unaudited	Unaudited	Unaudited
US dollar	1.31	1.38	1.26	1.32
Euro	1.19	1.14	1.18	1.18

11.  Seasonality

The results for the six months ended 31 May 2022 are impacted by a lower number of working days in the first six months of the year than in the second half of the year.

12.  Basis of preparation

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

This unaudited condensed interim consolidated financial information for the six months ended 31 May 2022 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 contained in UK-adopted International Accounting Standards. The condensed interim consolidated financial information should be read in conjunction with the annual financial statements for the year ended 30 November 2021, which were prepared in accordance with applicable law and International Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The accounting policies applied in these interim financial statements are consistent with those applied in the Group's consolidated financial statements for the year ended 30 November 2021.  A number of other new standards and amendments are effective from 1 December 2021 but they do not have a material effect on the Group's financial statements.

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

This condensed interim consolidated financial information has been prepared on a going concern basis under the historical cost convention, as modified by the recognition of certain financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.

The preparation of condensed interim 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 interim 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 2021, 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 2022, its current trading and medium-term plans; and taking into account the banking facilities available until May 2026, 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 interim consolidated financial information. Accordingly, they continue to adopt the going concern basis in preparing this condensed interim consolidated financial information.

This condensed interim consolidated financial information and the comparative figures do not constitute full accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 November 2021, which were approved by the Board of Directors on 28 January 2022, 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 interim consolidated financial information has been reviewed, not audited.

The condensed interim 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 2021.  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 interim consolidated financial information has been prepared in accordance with IAS 34 Interim Financial Reporting as contained in UK-adopted International Accounting Standards , 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 interim 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 2021.  A list of current Directors is maintained on the Porvair plc website, www.porvair.com . 

By order of the board

Ben Stocks	James Mills
Group Chief Executive 1 July 2022	Group Finance Director

INDEPENDENT REVIEW REPORT TO PORVAIR PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 31 May 2022 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of changes in equity and related notes 1 to 12.  We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' Responsibilities

The interim financial report, is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing and presenting the interim financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

The annual financial statements of the Group will be prepared in accordance with UK-adopted International Accounting Standards.  The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as contained in UK-adopted International Accounting Standards.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim 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 enquiries, 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 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 interim financial report for the six months ended 31 May 2022 is not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting" as contained in UK-adopted International Accounting Standards, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Use of our report

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 and for the purpose of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.  Our review work has been undertaken so that we might state to the Company those matters we are required to state to them 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.

RSM UK Audit LLP

Chartered Accountants

25 Farringdon Street

London EC4A 4AB

1 July 2022

 

END

 

 

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