PORVAIR PLC

Earnings Release • Jan 28, 2019

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RNS Number : 2029O

Porvair PLC

28 January 2019

For immediate release                                                                                                28 January 2019

Results for the year ended 30 November 2018

Record revenue, profit before tax and strong cash generation

Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its results for the year ended 30 November 2018.

Highlights

Strong financial performance:

·      Record revenue of £128.8 million (2017: £116.4 million), up 11%. 

·      Profit before tax up to a record £12.0 million (2017: £11.7 million).

·      Adjusted profit before tax* increased to £13.5 million (2017: £12.4 million).

·      Basic earnings per share up 13% to 22.1 pence (2017: 19.5 pence).

·      Adjusted basic earnings per share* up 11% to 22.9 pence (2017: 20.7 pence).

·      Net cash was £6.6 million at 30 November 2018 (2017: £9.8 million) after £13.5 million (2017: £11.4 million) invested in capital expenditure and acquisitions.

·      Recommended final dividend of 3.0 pence per share (2017: 2.7 pence per share), an increase of 11%.

·      Rohasys BV acquired and traded in line with expectations in its first year.

·      Keystone Filter acquired and integrated into the Aerospace & Industrial division.

·      Order books for 2019 are healthy, ahead of the prior year.

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

"The Group has started 2019 with a healthy order book and is trading well. The acquisitions made during the year have expanded the Group's capabilities in industrial and laboratory markets and are performing as expected. Porvair remains in a strong financial position."

*See note 1 for definition of alternative performance measures.

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 Monday 28 January 2019 at Buchanan. An audio webcast and a copy of the presentation will be available at www.porvair.com on the day.

Operating review

Overview of 2018

	2018		2017		Growth
	£m		£m		%
Revenue	128.8		116.4		11
Adjusted profit before tax	13.5		12.4		9
Profit before tax	12.0		11.7		3
Adjusted earnings per share	22.9p		20.7p		11
Earnings per share	22.1p		19.5p		13
Cash generated from operations	15.3		12.3
Net cash	6.6		9.8

Revenue was £128.8 million, an increase of 11%. Demand across the Group's three divisions was generally robust, notably so in US industrial, nuclear, laboratory consumables, aluminium and specialist metal filtration.

Profit before tax was £12.0 million (2017: £11.7 million).  Adjusted profit before tax in the year ended 30 November 2018, excluding the items disclosed in note 1, was up 9% to a record £13.5 million. Adjusted earnings per share increased 11% to 22.9 pence. After investing £13.5 million in capital expenditure and acquisitions, the Group finished the year with net cash of £6.6 million.

Over the last five years the Group has delivered revenue growth of 53% (9% CAGR) and cash from operations of £68 million.  Adjusted profit before tax has increased 66% (11% CAGR). Over the same period, £42 million has been invested in capital projects and acquisitions. In 2018, the Group's after tax adjusted operating profit return on operating capital was 43% (2017: 48%).

Strategic statement

Porvair's strategy is to generate shareholder value through the development of specialist filtration and associated environmental technology businesses, both organically and by acquisition. Such businesses have certain key characteristics in common:

·      Specialist design or engineering skills are required;

·      Product use and replacement is mandated by regulation, quality accreditation or a maintenance cycle; and

·      Products are typically designed into a system that will have a long life-cycle.

This strategy continues to work for the Group, which moves into 2019 in a position of financial strength, able to invest in both organic and acquired growth as appropriate.

Business model outline

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

This leads us to:

1.   Focus on regulated 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 three operating segments: Aerospace & Industrial; Laboratory; and Metal Melt Quality. All have clear structural growth drivers.

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

·      Through new product development the Group aims to generate growth rates in excess of the underlying market.  Where possible we build robust intellectual property around our product developments.

·      Our geographic presence follows the markets we serve. 52% of revenue is in the Americas; 19% in Asia; 15% in the EU and 13% in the UK. We aim to meet dividend and investment needs from free cash flow and modest borrowing facilities.  All investments are subject to a hurdle rate analysis based on strategic and financial priorities.

Operating structure

·      The Group operates with three divisions.  Each division addresses a core market: Aerospace & Industrial (approximately 40% of Group revenue); Laboratory (approximately 30% of Group revenue); and Metal Melt Quality (approximately 30% of Group revenue). 

·      The Group has plants in the US, UK, Germany, Netherlands and China.  In 2018, 57% of revenue was manufactured in the US, 30% in the UK, 9% in Continental Europe and 4% in China.

Investment and future development

The main investments during 2018 were:

·      The acquisition of Rohasys BV on 7 December 2017, bringing complementary instruments and automation expertise to Seal Analytical.

·      The acquisition of Keystone Filter on 28 February 2018, adding the manufacture of filter cartridges for the food, beverage and nuclear markets to our US Aerospace & Industrial division.

·      The expansion of our facility in Vineland, NJ, to provide increased manufacturing capacity, clean room capabilities and better plant layout.

·      Expansion and refurbishment of our microelectronics facility in Boise, ID.

·      A new manufacturing line for nuclear containment filters in Ashland, VA.

·      The commissioning of a new manufacturing line for bioscience filters in Wrexham, UK.

New product development remains core to Porvair's strategy, with incremental range extensions and increasing product differentiation being priorities. Our biggest project in 2018 was the overhaul and upgrade of Seal Analytical's core product, a segmented flow analyser. Our new AA500 analyser is smaller, faster, quieter and more accurate than any other on the market.

Divisional review

Aerospace & Industrial

	2018		2017		Growth
	£m		£m		%
Revenue	50.5		43.4		16
Inter segment revenue	-		(0.2)
External revenue	50.5		43.2		17
Operating profit	7.7		6.8		14
Adjusted operating profit	8.0		6.8		18

Reported revenue growth was 17%, but this includes sales transferred in from the Laboratory division and acquired growth. Underlying sales growth was 10% (note 1).  Adjusted operating profits in the division were up 18% to £8.0 million.

The division designs and manufactures a wide range of specialist filtration products, demand for which grows as aerospace and industrial customers seek cleaner, safer or more efficient operations.  Differentiation is achieved through design engineering, with notable new products introduced this year for the US nuclear market and aerospace inerting applications.

Demand in 2018 was good across industrial markets, notably in the US, where the Keystone acquisition contributed to growth in the second half.  The US had another record year for revenues and profits with nuclear and industrial orders robust.  After a quiet first half, aerospace orders increased in the second half and finished the year strongly.

Commissioning of the large gasification projects continued. These are complex power plants using new technology for which our filter systems are a relatively small but critical component. All three facilities - in Korea, India and China - experienced commissioning challenges during the year due to variations in feedstocks and operating conditions, but successful run time is accumulating. At this stage our filters are performing as expected, with spares orders delivered in the final quarter and scheduled for further deliveries in the first half of 2019.

Laboratory

	2018		2017		Growth
	£m		£m		%
Revenue	41.2		36.8		12
Inter segment revenue	(2.5)		(1.5)
External revenue	38.7		35.3		9
Operating profit	6.2		6.1		3
Adjusted operating profit	6.5		6.3		4

Revenue growth in the Laboratory division was 9%, including a full year of revenue from JG Finneran and the first year from Rohasys.  Adjusted operating profit grew 4%, Rohasys having contributed revenue but minimal profits in its first year of ownership.

The division serves the analytical laboratory market, where increasing availability of smaller automated instruments and the growing requirement for ever improving detection limits is driving demand for sample preparation and testing.  The Group addresses this market with analytical instruments and robotic systems supplied by Seal Analytical and a range of sample preparation and chromatography consumables supplied by Porvair Sciences and JG Finneran.

Seal Analytical had a good year, compensating for slower instrument sales into China with increased demand in the US. Seal is a leading supplier of instruments and consumables to environmental laboratories and specialises in equipment for the detection of inorganic contamination in water. This market grows as water quality standards improve. Seal differentiates itself with an active new product development programme which will be boosted in 2019 by the roll out of the new AA500, a product that offers significant benefits to Seal's extensive installed base. Rohasys finished its first year with sales and profits in line with the targets set at the time of the acquisition. Its automation expertise is accelerating our new product development programme. Seal's five-year CAGR revenue growth is 10%. 

Porvair Sciences manufactures laboratory filters and associated consumables, with a focus on chromatography and laboratory sample preparation products. Differentiation is through proprietary filtration media and manufacturing capabilities, with both benefitting from continued investment in 2018. During the year we acquired some filter coating intellectual property which we expect will add to our sample preparation capabilities.  Sales of bioscience filtration media increased 26%.  JG Finneran performed strongly in its first full year and will further benefit in 2019 from its improved and enlarged facilities.

Metal Melt Quality

	2018		2017		Growth
	£m		£m		%
Revenue	39.6		37.8		5%
Operating profit	2.4		1.7		37%

Revenue was up 5% (9% in constant currency (note 1)) to a record £39.6 million. Operating profit increased 37%.  Much improved US operational efficiencies were balanced by continuing losses in China.

This division serves three market segments and has a well differentiated and patented product range:

·      Selee CSX™ and Selee CSW™ for aluminium cast house filtration. These products are free of phosphates and ceramic fibres, giving them a unique environmental footprint.

·      Selee IC™ for grey and ductile iron filtration. This range is sold principally in the US and offers excellent filtration efficiency.

·      Selee SA™ for the filtration of nickel-cobalt alloys. This niche application requires exceptional filtration performance and uses proprietary manufacturing techniques.

In the US, market share gains resulted in a fifth record year for sales of Selee CSX™ aluminium cast house filters.  Demand for super alloy filters grew and the range and volume of ceramic 3D manufactured products again increased.  Plant efficiencies in the US were excellent. This allowed the US business to report record margins.

Revenue in China grew by over 30%, but our Chinese plant is not yet at break even volumes and costs. As the Chinese aluminium market develops, we expect demand for our proprietary filters to grow, based on their demonstrably better quality and environmental performance. Higher grades of metal require better filtration and, in line with the Chinese Government's 'China 2025' initiative, Chinese producers are moving to higher grade alloys. We continue to sell on value rather than price. This can initially hold back growth, but our experience in other parts of the world gives us confidence that this remains the right strategy.

Dividends

The Board re-affirms its preference for a progressive dividend policy and recommends an increased final dividend of 3.0 pence per share, a cost of £1.4 million (2017: 2.7 pence per share, a cost of £1.2 million). This makes the full year dividend increase by 10% to 4.6 pence per share, a cost of £2.1 million (2017: 4.2 pence, a cost of £1.9 million).

Staff

The Board recognises that Porvair's success is largely due to the skill and commitment of its staff, to whom we offer our sincere thanks. During the year we welcomed new members of staff to the Group from both Keystone and Rohasys.

Charles Matthews stepped down from the Board at the 2018 AGM, at which time we expressed our gratitude and best wishes.

Current trading and outlook

The Group has started 2019 with a healthy order book and is trading well. The acquisitions made during the year have expanded the Group's capabilities in industrial and laboratory markets and are performing as expected. Porvair remains in a strong financial position.

Ben Stocks

Group Chief Executive

25 January 2019

Financial review

Group results

	2018		2017		Growth
	£m		£m		%
Revenue	128.8		116.4		11
Operating profit	12.9		12.3		4
Profit before tax	12.0		11.7		3
Profit for the year	10.0		8.8		13

Reported revenue growth was 11%, 13% at constant currency. 7% was from organic growth and 6% from acquisitions.  Operating profit was £12.9 million (2017: £12.3 million) and profit before tax was £12.0 million (2017: £11.7 million).  Profit for the year increased by 13% to £10.0 million.

Alternative performance measures

	2018		2017		Growth
	£m		£m		%
Adjusted operating profit	14.3		13.0		10
Adjusted profit before tax	13.5		12.4		9
Adjusted profit for the year	10.4		9.4		11

In addition to the constant currency revenue measures disclosed in previous years, the Group has presented other alternative performance measures for the first time this year to enable a better understanding of the Group's trading performance.  Adjusted operating profit and adjusted profit before tax exclude:

·      the impact of acquiring businesses:

o  the amortisation of acquired intangible assets of £0.6 million (2017: £0.2 million);

o  other adjustments to profit and loss related to acquiring businesses of £0.1 million (2017: £0.4 million).

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

o  an exceptional charge of £773,000 (2017: £nil), following recent legal guidance, to enhance the benefits provided by the Group's defined benefit pension plan to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.

Adjusted profit for the year excludes the adjustments to profit before tax above together with their tax effect and an exceptional one off tax credit of £778,000 (2017: £nil), reflecting a reduction in the Group's deferred tax liability from the change in US tax rates from December 2017 enacted in the US Tax Cuts and Jobs Act.

Group operating performance

The two recent acquisitions, Rohasys BV ("Rohasys") and Keystone Filter ("Keystone") contributed to revenue growth in the year but, as expected, neither contributed significantly to operating profit, consequently adjusted operating profit margins reduced slightly to 11.1% (2017: 11.2%).  Adjusted operating margins increased in the Aerospace & Industrial division to 15.9% (2017: 15.7%). In the Laboratory division adjusted operating margins reduced to 15.8% (2017: 17.0%), as a result of the acquisition of Rohasys and margin sharing with Aerospace & Industrial on the transfer of customers between divisions.  Metal Melt Quality operating margins increased to 6.0% (2017: 4.6%), a better performance in the US more than offsetting the increased losses in China.  Adjusted Central costs increased to £2.6 million (2017: £1.8 million).  The result in 2017 included the release of £1.0 million currency contract mark-to-market provisions.

Impact of exchange rate movements on performance

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

	2018		2017
Average rate for translating the results:
US $ denominated operations	$1.34:£		$1.29:£
Euro denominated operations	€1.13:£		€1.15:£
Closing rate for translating the balance sheet:
US $ denominated operations	$1.28:£		$1.35:£
Euro denominated operations	€1.13:£		€1.14:£

A stronger Sterling average rate against the US dollar offset by a weaker Sterling average rate against the Euro over the year reduced reported revenues on translation by 2%. 

In the year, the Group sold $17.8 million (2017: $16.0 million) at an average rate of $1.33:£1 (2017: $1.29:£1) and €3.9 million (2017: €5.5 million) at an average rate of €1.13:£1 (2017: €1.12:£1). 

At 30 November 2018, the Group had no outstanding forward foreign exchange contracts (2017: $2.0 million). It had $6.2 million (2017: $3.9 million) of net current assets on the UK operations' balance sheet. 

Finance costs

Net interest payable comprises bank borrowing costs, interest on the Group's pension deficit and the cost of unwinding discounts on provisions.  Overall, it remained stable at £0.8 million (2017: £0.7 million).  The defined benefit pension scheme interest cost was £0.4 million (2017: £0.4 million), bank interest and borrowing facilities non-utilisation fees were £0.3 million (2017: £0.3 million) and there was a charge of £0.1 million (2017: £nil) for unwinding discounted provisions. 

Interest cover was 17 times (2017: 20 times).  Interest cover on bank finance costs was 44 times (2017: 62 times).

Tax

The Group tax charge was £2.0 million (2017: £2.8 million).  After removing the adjusting items described in note 1 to the accounts, the Group's underlying tax charge was £3.1 million (2017: £3.0 million). This is an effective rate of 23.0% (2017: 24.4%), which is higher than the UK standard corporate tax rate of 19.0% (2017: 19.3%).  The tax rate in the UK compared with the standard rate was reduced by the benefit of tax relief on the exercise of share options.  The tax rate was pushed up by profits made in Germany, which attract a higher tax rate. The Group has not taken a tax credit relating to the losses arising in China because it could not be certain that the asset would be recovered, this has increased the tax rate by 3.2% (2017: 2.5%). 

The US tax rate reduced to an effective rate of 23% (2017: 31%) as a result of changes enacted in the US Tax Cuts and Jobs Act.  This has reduced the effective tax rate on Group trading profits by 3% compared with the prior year.

The tax charge comprises current tax of £2.7 million (2017: £2.1 million) and a deferred tax credit of £0.7 million (2017: charge of £0.8 million). 

The Group carries a deferred tax asset of £2.3 million (2017: £2.9 million) and a deferred tax liability of £2.0 million (2017: £2.2 million).  The deferred tax asset relates principally to the deficit on the pension fund and share-based payments.  The deferred tax liability relates to accelerated capital allowances, capitalised development costs and other timing differences, predominantly arising in the US. 

Total equity and distributable reserves

Total equity at 30 November 2018 was £89.5 million (2017: £74.9 million), an increase of 19% over the prior year. 

Increases in total equity arose from: profit after tax of £10.5 million (2017: £9.2 million) with the charge for employee share option schemes net of tax (2018: £0.4 million; 2017: £0.4 million) added back; £0.1 million (2017: £0.3 million) arising on the proceeds of the issue of shares on share option exercises; a pension scheme actuarial gain (net of tax) of £2.9 million (2017: nil); and exchange gains (net of tax) on translation of £3.5 million (2017: loss of £4.0 million).  In 2018 there was no impact of hedge accounting instruments (2017: gain of £0.2 million).

Reductions in total equity arose from dividends paid of £2.0 million (2017: £1.8 million) and purchases by the Employee Benefit Trust of the Company's own shares charged directly to equity of £0.4 million (2017: £0.5 million).

The Company had £19.5 million (2017: £12.6 million) of distributable reserves at 30 November 2018.  The Company's distributable reserves increased in the year as a result of dividends received from other Group companies and an actuarial gain offset by head office costs and dividends paid to shareholders. 

Return on capital employed

The Group's return on capital employed was 15% (2017: 16%).  Excluding the impact of goodwill and the net pension liability, the return on operating capital employed was 43% (2017: 48%).  The Group's divisions have pre-tax weighted average costs of capital of between 9% and 11%.

Cash flow

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

	2018		2017
	£m		£m
Operating cash flow before working capital	17.0		13.7
Working capital movement	(1.7)		(1.4)
Cash generated from operating activities	15.3		12.3
Interest	(0.3)		(0.2)
Tax	(2.4)		(2.7)
Capital expenditure net of disposals	(4.5)		(5.4)
	8.1		4.0
Acquisitions	(9.0)		(5.9)
Dividends	(2.0)		(1.8)
Share issue proceeds	0.1		0.3
Purchase of EBT shares	(0.4)		(0.5)
Net cash decrease in the year	(3.2)		(3.9)
Exchange gains	-		0.1
Net cash at 1 December	9.8		13.6
Net cash at 30 November	6.6		9.8

Generating free cash flow is key to the Group's business model and operating cashflow of £15.3 million, represented an 88% (2017: 80%) conversion rate of operating profit before depreciation and amortisation.  Net working capital increased by £1.7 million (2017: £1.4 million), mainly arising in the Aerospace & Industrial division.  A particularly strong final month and purchases made for manufacture and delivery of the strong order book meant that receivables increased by £1.6 million (2017: £0.3 million) and inventories increased by £2.5 million (2017: £0.5 million).  Payables increased by £3.2 million (2017: £0.5 million).

Construction contracts and performance bonds

During the year a nuclear and a gasification contract were completed. Progress on a further nuclear contract and two gasification contracts is described in the Aerospace & Industrial section of Operating Review.  At 30 November 2018, the Group had £0.3 million (2017: £0.8 million) due from contract customers and net amounts due to contract customers of £7.3 million (2017: £8.0 million), representing the net amount by which progress billings at 30 November 2018 exceeded revenue recognised to date on these contracts.  The deferred revenue will be recognised as costs are incurred and/or profits recognised.

Contract customers generally provide advance payments to fund the initial stages of the contracts and the Group provides advance payment bonds to the customer as security.  The bonds are cancellable after up to six months following the shipment of goods.  At 30 November 2018 there were $2.4 million advance payment bonds outstanding (2017: £nil).

Contract customers also generally require performance bonds to cover risks arising during the contract warranty periods.  At 30 November 2018, the Group had $7.5 million (2017: $6.2 million) of performance bonds outstanding.

Capital expenditure

Capital expenditure was £4.5 million (2017: £5.4 million) in the year.  The principal investments in 2018 are described in the Investment section of the Operating review.  

Acquisitions

On 7 December 2017 the Group purchased 100% of the share capital of Rohasys B.V. ("Rohasys") to increase the Group's offering in the laboratory market. Rohasys manufactures robotic sample handling systems in the Netherlands.  The total maximum consideration is €3,548,000 (£3,118,000); €896,000 (£787,000) was paid in cash on the acquisition date, together with €502,000 (£441,000) to settle the outstanding loan.  The balance is contingent on financial performance and due for payment in cash over four years.  The contingent consideration is dependent on Rohasys meeting sales and profit targets and will be settled in cash.  €250,000 (£226,000) was paid in the year and, at 30 November 2018, €1.7 million (£1.5 million) was held in other payables.

On 28 February 2018 the Group purchased the net assets of Keystone Filter ("Keystone"), a division of CECO Environmental Corp.  Keystone designs and manufactures a range of filter cartridges and housings for the food and beverage, drinking water, and chemical process markets and is based in the USA.  The total consideration of $7,190,000 (£5,219,000) was paid in full in the year. 

Pension schemes

The Group supports its defined benefit pension scheme in the UK ("The Plan"), which is closed to new members, and provides access to defined contribution schemes for its US employees and other UK employees.

The Group's total pension cost was £3.7 million (2017: £2.7 million). £3.3 million (2017: £2.3 million) was recorded as an operating cost: £1.7 million (2017: £1.6 million) related to funding defined contributions schemes; £1.5 million (2017: £0.6 million) related to the charge for The Plan and £0.1 million (2017: £0.1 million) related to the pension protection levy.  £0.4 million (2017: £0.4 million) was charged as a finance cost in relation to The Plan. 

The Group's cash contributions paid to The Plan were £1.6 million (2017: £1.6 million). 

The Group's net retirement benefit obligation was £12.4 million (2017: £15.7 million).  The Plan's liabilities reduced to £39.2 million (2017: £43.8 million).  The Plan's assets reduced to £27.0 million (2017: £28.3 million). There were a further £0.2 million (2017 £0.2 million) of non-Plan liabilities.

The actuarial gain in the year was £3.6 million (2017: loss of £0.1 million).  The Plan's assets suffered an actuarial loss of £1.4 million.  The actuarial gain on the liabilities of £5 million arose principally from changes to the discount rate used to value The Plan's liabilities and a change in the mortality assumption:

·      The discount rate increased from 2.5% to 3.0%, as a result of higher AA bond yields, which accounted for most of the reduction of £3.2 million in liabilities arising on changes in financial assumptions.

·      During 2018, as a precursor to the triennial valuation, the Group reviewed the demographic assumptions used by The Plan.  To assess the most appropriate mortality assumption for The Plan, the Group commissioned a Medically Underwritten Mortality Study and a postcode mortality analysis from its actuarial advisers, KPMG.  The Company wrote to members of The Plan aged between 55 and 80 representing approximately 95% of the value of liabilities in that age range and 61% of the liabilities in total.  134 members completed the survey representing 63% of the liabilities in the 55 to 80 age range and 40% of the liabilities in total.  The medical underwriter's results were analysed by KPMG and combined with the findings of a postcode mortality analysis to arrive at an overall blended mortality assumption for The Plan.

This resulted in a multiplier applied to the SAPS series 2 base tables of 122% (2017: 106%) for the IAS 19 accounting valuation.  The allowance for future improvements used the 2017 CMI Core Projection (2017: 2016 CMI Core Projections) with a long term trend of 1.25% per annum.  The change in demographic assumptions modestly reduced the life expectancy assumed for the members and reduced the Group's defined pension scheme liabilities by £1.8 million.

The Plan's liabilities increased by £773,000 to amend the benefits provided by The Plan to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.  This additional liability was charged to the income statement.

The triennial actuarial valuation of The Plan determines the cash contributions that the Group makes to The Plan.  The next full actuarial valuation will be based on The Plan's position at 31 March 2018 and is expected to be completed before 30 June 2019.  For the previous valuation, based on data at 31 March 2015, the Group agreed to set the employer's contributions at 18.9% of salary.  Additionally, the Group committed to making a £0.2 million annual contribution towards the running costs of The Plan from April 2016, which will increase by 3.5% per annum thereafter.  The Group also committed to make additional annual contributions, to cover the past service deficit of £1.0 million per annum. 

Borrowings and bank finance

At the year end, the Group had cash balances of £11.5 million (2017: £12.5 million) and borrowings of £4.9 million (2017: £2.7 million). 

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

At 30 November 2018, the Group had net cash of £6.6 million (2017: £9.8 million), €17.3 million (£15.3 million) of unused facilities (2017: €19.6 million of unused facilities (£17.2 million)) and an unutilised overdraft facility of £2.5 million (2017: £2.5 million). 

Finance and treasury policy

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

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

Adoption of new accounting standards

The Group will adopt IFRS 9 and 15 in its accounts for the year ending 30 November 2019 and will adopt IFRS 16 in its accounts for the year ending 30 November 2020.  The impact of the changes arising from the adoption of these new standards is expected to be immaterial to the opening reserves and performance of the Group.  Adopting IFRS 16 will result in the gross up of fixed assets and liabilities in the opening balance sheet of the 2020 accounts and adopting IFRS 15 will result in substantially all of the amounts due to contract customers included in accruals and deferred income in the 2018 accounts being converted to accruals for future costs in the opening balance sheet of the 2019 accounts.

International Trade 

Over 50% of Group revenues are manufactured in the US and changes to US tariff arrangements have had a modest effect on trading. A few customers in both the US and China have switched back to domestic suppliers, and the Group has both won and lost accounts as a result.  The net effect has been small.  Trading activity between the UK and the EU is less than 10% of Group revenues, so a significant perturbation due to Brexit is unlikely, nevertheless the implications of either a short term disturbance in the movement of goods or longer term tariff changes have been taken into account in the Group's planning for 2019.

Chris Tyler

Group Finance Director

25 January 2019

Consolidated income statement

For the year ended 30 November

		Note	2018		2017
Continuing operations			£'000		£'000
Revenue		1,2	128,823		116,423
Cost of sales			(84,444)		(78,091)
Gross profit			44,379		38,332
Distribution costs			(2,172)		(1,645)
Administrative expenses			(29,339)		(24,348)
Adjusted operating profit		1,2	14,343		13,021
Adjustments
Equalisation of guaranteed minimum pension		1	(773)		-
Amortisation of acquired intangibles		1	(564)		(244)
Other acquisition related adjustments		1	(138)		(438)
Operating profit		1,2	12,868		12,339
Finance income			6		4
Finance costs			(836)		(661)
Profit before income tax		1,2	12,038		11,682
Adjusted income tax expense			(3,113)		(3,011)
Adjustments
Tax effect of adjustments to operating profit		1	325		171
Exceptional reduction of US deferred tax liability		1	778		-
Income tax expense			(2,010)		(2,840)
Profit for the year			10,028		8,842
Profit attributable to:
Owners of the parent			10,045		8,861
Non-controlling interests			(17)		(19)
Profit for the year			10,028		8,842
Earnings per share (basic)		3	22.1p		19.5p
Adjusted earnings per share (basic)		3	22.9p		20.7p
Earnings per share (diluted)		3	22.0p		19.4p
Adjusted earnings per share (diluted)		3	22.8p		20.5p

Consolidated statement of comprehensive income

For the year ended 30 November

		2018 £'000		2017 £'000
Profit for the year		10,028		8,842
Other comprehensive income/(expense):
Items that will not be reclassified to profit and loss
Actuarial gains/(losses) in defined benefit pension plans net of tax		2,948		(66)
Items that may subsequently be classified to profit and loss
Exchange differences on translation of foreign subsidiaries		3,606		(3,985)
Tax relating to components of other comprehensive income		(149)		-
Changes in fair value of forex contracts held as a cash flow hedge		-		157
		3,457		(3,828)
Net other comprehensive income/(expense)		6,405		(3,894)
Total comprehensive income for the year		16,433		4,948
Comprehensive income attributable to:
Owners of the parent		16,450		4,967
Non-controlling interests		(17)		(19)
Total comprehensive income for the year		16,433		4,948

Consolidated balance sheet

As at 30 November

	Note	2018 £'000		2017 £'000
Non-current assets
Property, plant and equipment	5	21,827		19,997
Goodwill and other intangible assets	6	67,001		57,227
Deferred tax asset		2,304		2,933
		91,132		80,157
Current assets
Inventories		19,856		16,067
Trade and other receivables		22,336		19,186
Derivative financial instruments		-		40
Cash and cash equivalents		11,492		12,497
		53,684		47,790
Current liabilities
Trade and other payables	7	(32,826)		(27,736)
Current tax liabilities		(1,530)		(1,164)
Provisions for other liabilities and charges	10	(506)		(1,217)
		(34,862)		(30,117)
Net current assets		18,822		17,673
Non-current liabilities
Borrowings	9	(4,867)		(2,711)
Deferred tax liability		(2,032)		(2,166)
Retirement benefit obligations		(12,356)		(15,670)
Other payables		(1,008)		(2,216)
Provisions for other liabilities and charges	10	(219)		(178)
		(20,482)		(22,941)
Net assets		89,472		74,889
Capital and reserves
Share capital	11	917		913
Share premium account	11	35,958		35,831
Cumulative translation reserve		10,570		6,964
Retained earnings		42,024		31,161
Equity attributable to owners of the parent		89,469		74,869
Non-controlling interests		3		20
Total equity		89,472		74,889

Consolidated cash flow statement

For the year ended 30 November

	Note		2018 £'000		2017 £'000
Cash flows from operating activities
Cash generated from operations	14		15,335		12,257
Interest paid			(345)		(220)
Tax paid			(2,419)		(2,741)
Net cash generated from operating activities			12,571		9,296
Cash flows from investing activities
Interest received			6		4
Acquisition of subsidiaries (net of cash acquired)	13		(9,007)		(5,932)
Purchase of property, plant and equipment	5		(3,796)		(5,248)
Purchase of intangible assets	6		(656)		(177)
Share capital from non-controlling interests			-		39
Net cash used in investing activities			(13,453)		(11,314)
Cash flows from financing activities
Proceeds from issue of ordinary share capital	11		131		325
Purchase of Employee Benefit Trust shares			(416)		(475)
Increase in borrowings			1,913		3,021
Dividends paid to shareholders	4		(1,957)		(1,769)
Net cash (used in)/from financing activities			(329)		1,102
Net decrease in cash and cash equivalents			(1,211)		(916)
Exchange gains/(losses) on cash and cash equivalents			206		(220)
			(1,005)		(1,136)
Cash and cash equivalents at 1 December			12,497		13,633
Cash and cash equivalents at 30 November			11,492		12,497

Reconciliation of net cash flow to movement in net cash

		2018 £'000		2017 £'000
Net decrease in cash and cash equivalents		(1,211)		(916)
Effects of exchange rate changes		(37)		90
Increase in borrowings		(1,913)		(3,021)
Net cash at 1 December		9,786		13,633
Net cash at 30 November		6,625		9,786

Consolidated statement of changes in equity

	Share capital £'000	Share premium account £'000	Cumulative translation reserve £'000	Retained earnings £'000	Total £'000	Non-controlling interest £'000	Total £'000
Balance at 1 December 2016	906	35,513	10,949	24,078	71,446	-	71,446
Profit for the year	-	-	-	8,861	8,861	-	8,861
Other comprehensive income/(expense):	-	-	(3,985)	91	(3,894)	-	(3,894)
Total comprehensive income for the year	-	-	(3,985)	8,952	4,967	-	4,967
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(475)	(475)	-	(475)
Employee share option schemes:
- value of employee services net of tax	-	-	-	375	375	-	375
Proceeds from shares issued	7	318	-	-	325	-	325
Dividends paid	-	-	-	(1,769)	(1,769)	-	(1,769)
Total transactions with owners recognised directly in equity	7	318	-	(1,869)	(1,544)	-	(1,544)
Adjustment arising from change in non-controlling interest	-	-	-	-	-	20	20
Balance at 30 November 2017	913	35,831	6,964	31,161	74,869	20	74,889
Balance at 1 December 2017	913	35,831	6,964	31,161	74,869	20	74,889
Profit for the year	-	-	-	10,045	10,045	-	10,045
Other comprehensive income:	-	-	3,606	2,799	6,405	-	6,405
Total comprehensive income for the year	-	-	3,606	12,844	16,450	-	16,450
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(416)	(416)	-	(416)
Employee share option schemes:
- value of employee services net of tax	-	-	-	392	392	-	392
Proceeds from shares issued	4	127	-	-	131	-	131
Dividends paid	-	-	-	(1,957)	(1,957)	-	(1,957)
Total transactions with owners recognised directly in equity	4	127	-	(1,981)	(1,850)	-	(1,850)
Adjustment arising from change in non-controlling interest	-	-	-	-	-	(17)	(17)
Balance at 30 November 2018	917	35,958	10,570	42,024	89,469	3	89,472

Notes

1.             Alternative performance measures

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

Alternative revenue measures

		2018		2017		Growth
Aerospace & Industrial		£'000		£'000		%
Underlying revenue		47,916		43,651		10
Divisional adjustment		-		(1,955)
Acquisitions		1,671		-
Revenue at constant currency		49,587		41,696		19
Exchange		949		1,553
Revenue as reported		50,536		43,249		17
Laboratory
Underlying revenue		25,970		26,075		0
Divisional adjustment		-		1,955
Acquisitions		11,291		5,866
Revenue at constant currency		37,261		33,896		10
Exchange		1,398		1,430
Revenue as reported		38,659		35,326		9
Metal Melt Quality
Revenue at constant currency		37,678		34,707		9
Exchange		1,950		3,141
Revenue as reported		39,628		37,848		5
Group
Underlying revenue		111,564		104,433		7
Acquisitions		12,962		5,866
Revenue at constant currency		124,526		110,299		13
Exchange		4,297		6,124
Revenue as reported		128,823		116,423		11

Revenue at constant currency is derived from translating overseas subsidiaries at budgeted fixed exchange rates.  In 2018 and 2017 the rates used were $1.4:£ and €1.2:£.

Underlying revenue is revenue at constant currency adjusted for the impact of acquisitions made in the current and prior year and, in the case of 2017, the impact of accounts that were managed by the Laboratory division in 2017 but transferred to Aerospace & Industrial in 2018.

1.             Alternative performance measures continued

Alternative profit measures

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

				2018							2017
		Adjusted £'000		Adjustments £'000			Total £'000			Adjusted £'000	Adjustments £'000		Total £'000
Operating profit			14,343		(1,475)	12,868			13,021		(682)	12,339
Finance income			6		-	6			4		-	4
Finance costs:			(836)		-	(836)			(661)		-	(661)
Profit before income tax			13,513		(1,475)	12,038			12,364		(682)	11,682
Income tax expense			(3,113)		1,103	(2,010)			(3,011)		171	(2,840)
Profit for the year			10,400		(372)	10,028			9,353		(511)	8,842

	2018		2017
	£'000		£'000
Equalisation of guaranteed minimum pension	(773)		-
Amortisation of intangible assets acquired through acquisitions	(564)		(244)
Release of contingent consideration	-		20
Acquisition expenses	(138)		(458)
Adjustments affecting operating profit	(1,475)		(682)
Tax effect of adjustments	325		171
Tax - exceptional item	778		-
Adjustments affecting tax	1,103		171
Total adjusting items	(372)		(511)

Adjusted operating profit and adjusted profit before tax exclude:

·      the impact of acquiring businesses:

o  the amortisation of acquired intangible assets of £0.6 million (2017: £0.2 million); and

o  acquisition expenses and other adjustments to the income statement related to acquiring businesses of £0.1 million (2017: £0.4 million).

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

o  an exceptional charge of £773,000 (2017: £nil), following recent legal precedent, to enhance the benefits provided by the Group's defined benefit pension plan to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.

Adjusted profit for the year excludes the adjustments to profit before tax together with their tax effect and an exceptional one off tax credit of £778,000 (2017: £nil) reflecting a reduction in the Group's deferred tax liability from the change in US tax rates from December 2017 enacted in the US Tax Cuts and Jobs Act.

2.             Segment information

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

2018	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	50,546		41,181		39,628		-		131,355
Inter-segment revenue	(10)		(2,522)		-		-		(2,532)
Revenue	50,536		38,659		39,628		-		128,823
Adjusted operating profit/(loss)	8,043		6,494		2,373		(2,567)		14,343
Equalisation of guaranteed minimum pension	-		-		-		(773)		(773)
Amortisation of acquired intangibles	(302)		(255)		(7)		-		(564)
Other acquisition related adjustments	-		-		-		(138)		(138)
Operating profit/(loss)	7,741		6,239		2,366		(3,478)		12,868
Interest payable and similar charges	-		-		-		(830)		(830)
Profit/(loss) before income tax	7,741		6,239		2,366		(4,308)		12,038
Income tax expense	-		-		-		(2,010)		(2,010)
Profit/(loss) for the year	7,741		6,239		2,366		(6,318)		10,028

2017	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	43,407		36,774		37,848		-		118,029
Inter-segment revenue	(158)		(1,448)		-		-		(1,606)
Revenue	43,249		35,326		37,848		-		116,423
Adjusted operating profit/(loss)	6,825		6,255		1,745		(1,804)		13,021
Amortisation of acquired intangibles	(42)		(189)		(13)		-		(244)
Other acquisition related adjustments	-		-		-		(438)		(438)
Operating profit/(loss)	6,783		6,066		1,732		(2,242)		12,339
Interest payable and similar charges	-		-		-		(657)		(657)
Profit/(loss) before income tax	6,783		6,066		1,732		(2,899)		11,682
Income tax expense	-		-		-		(2,840)		(2,840)
Profit/(loss) for the year	6,783		6,066		1,732		(5,739)		8,842

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

2.             Segment information continued

Segment assets and liabilities

At 30 Nov 2018	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	59,655		37,608		33,869		2,192		133,324
Cash and cash equivalents	-		-		-		11,492		11,492
Total assets	59,655		37,608		33,869		13,684		144,816
Segmental liabilities	(18,610)		(11,365)		(3,999)		(4,147)		(38,121)
Retirement benefit obligations	-		-		-		(12,356)		(12,356)
Bank overdraft and loans	-		-		-		(4,867)		(4,867)
Total liabilities	(18,610)		(11,365)		(3,999)		(21,370)		(55,344)

At 30 Nov 2017	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	46,985		30,250		35,222		2,993		115,450
Cash and cash equivalents	-		-		-		12,497		12,497
Total assets	46,985		30,250		35,222		15,490		127,947
Segmental liabilities	(15,979)		(7,690)		(3,917)		(7,091)		(34,677)
Retirement benefit obligations	-		-		-		(15,670)		(15,670)
Bank overdraft and loans	-		-		-		(2,711)		(2,711)
Total liabilities	(15,979)		(7,690)		(3,917)		(25,472)		(53,058)

Geographical analysis

	2018				2017
	By destination £'000		By origin £'000		By destination £'000		By origin £'000
Revenue
United Kingdom	16,494		38,984		15,529		37,122
Continental Europe	19,322		10,949		15,156		10,120
United States of America	56,159		73,979		51,989		66,187
Other NAFTA	8,304		-		8,793		-
South America	2,206		-		1,658		-
Asia	24,914		4,911		22,004		2,994
Africa	1,424		-		1,294		-
	128,823		128,823		116,423		116,423

3.             Earnings per share

	2018				2017
Total	Earnings £'000	Weighted average number of shares	Per share amount (pence)		Earnings £'000	Weighted average number of shares	Per share amount (pence)
Earnings attributable to ordinary shareholders	10,045				8,861
Shares in issue		45,705,419				45,429,715
Shares owned by the Employee Benefit Trust		(156,552)				(63,618)
Basic earnings	10,045	45,548,867	22.1		8,861	45,366,097	19.5
Effect of dilutive securities - share options		102,380	(0.1)			262,585	(0.1)
Diluted earnings	10,045	45,651,247	22.0		8,861	45,628,682	19.4

	2018				2017
Adjusted	Earnings £'000	Weighted average number of shares	Per share amount (pence)		Earnings £'000	Weighted average number of shares	Per share amount (pence)
Earnings attributable to ordinary shareholders	10,045				8,861
Adjusting items (note 1)	372				511
Adjusted earnings attributable to ordinary shareholders	10,417				9,372
Adjusted basic earnings	10,417	45,548,867	22.9		9,372	45,366,097	20.7
Adjusted diluted earnings	10,417	45,651,247	22.8		9,372	45,628,682	20.5

4.             Dividends per share

	2018			2017
	Per share	£'000		Per share	£'000
Final dividend paid	2.7p	1,229		2.4p	1,088
Interim dividend paid	1.6p	728		1.5p	681
	4.3p	1,957		3.9p	1,769

The Directors recommend the payment of a final dividend of 3.0 pence per share (2017: 2.7 pence per share) on 7 June 2019 to shareholders on the register on 3 May 2019; the ex-dividend date is 2 May 2019.  This makes a total dividend for the year of 4.6 pence per share (2017: 4.2 pence per share).

5.            Property, plant and equipment

		Land and buildings		Assets in the course of construction		Plant, machinery and equipment		Total
Cost		£'000		£'000		£'000		£'000
At 1 December 2017		9,939		1,280		35,539		46,758
Reclassification		173		(975)		802		-
Additions		704		1,827		1,265		3,796
Acquisitions		-		-		192		192
Disposals		(4)		-		(156)		(160)
Exchange differences		394		46		1,165		1,605
At 30 November 2018		11,206		2,178		38,807		52,191

Depreciation
At 1 December 2017		(2,964)		-		(23,797)		(26,761)
Charge for the year		(318)		-		(2,522)		(2,840)
Disposals		4		-		156		160
Exchange differences		(127)		-		(796)		(923)
At 30 November 2018		(3,405)		-		(26,959)		(30,364)

Net book value
At 30 November 2018		7,801		2,178		11,848		21,827
At 30 November 2017		6,975		1,280		11,742		19,997

6.             Goodwill and other intangible assets

	Goodwill		Development expenditure capitalised		Software capitalised		Trademarks, knowhow and other intangibles		Total
	£'000		£'000		£'000		£'000		£'000
Net book amount at 1 December 2017	56,309		158		232		528		57,227
Additions	-		115		541		-		656
Acquisitions	4,036		-		2		3,218		7,256
Amortisation charges	-		(76)		(54)		(637)		(767)
Exchange differences	2,416		11		18		184		2,629
Net book amount at 30 November 2018	62,761		208		739		3,293		67,001

At 30 November 2018	Goodwill		Development expenditure capitalised		Software capitalised		Trademarks, knowhow and other intangibles		Total
	£'000		£'000		£'000		£'000		£'000
Cost	81,429		890		1,882		5,324		89,525
Accumulated amortisation and impairment	(18,668)		(682)		(1,143)		(2,031)		(22,524)
Net book amount	62,761		208		739		3,293		67,001

7.             Trade and other payables

Amounts falling due within one year:	2018 £'000		2017 £'000
Trade payables	12,046		9,503
Taxation and social security	628		814
Other payables	2,884		2,318
Accruals and deferred income	17,268		15,101
At 30 November	32,826		27,736

8.             Construction contracts

	2018 £'000		2017 £'000
Amounts due from contract customers included in trade receivables	329		834
Contracts in progress at 30 November:
Amounts due from contract customers included in other receivables	460		211
Amounts due to contract customers included in accruals and deferred income	(7,728)		(8,210)
Net amounts due to contract customers	(7,268)		(7,999)
Contract costs incurred plus recognised profits less recognised losses to date	32,805		45,165
Less: progress billings	(40,073)		(53,164)
Contracts in progress at 30 November	(7,268)		(7,999)

The amount of construction contract revenue recognised in the year is £2,640,000 (2017: £910,000).

9.             Borrowings

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

At 30 November 2018, the Group had €17.3 million of unused facilities (2017: €19.6 million of unused facilities) and an unutilised overdraft facility of £2.5 million (2017: £2.5 million). 

10.          Provisions

	Dilapidations		Warranty		Total
	£'000		£'000		£'000
At 1 December 2017	178		1,217		1,395
Released in the year	-		(711)		(711)
Charged to the consolidated income statement:
Unwinding of discount	41		-		41
At 30 November 2018	219		506		725

Analysis of total provisions:	2018 £'000		2017 £'000
Current	506		1,217
Non-current	219		178
At 30 November	725		1,395

Provisions arise from a discounted dilapidations provision for leased property, which is expected to be required in 2023 and sale warranties which expire by 2020.  The amount released in the year of £711,000 arose on the completion of contracts.

11.          Share capital and premium

		Number of shares		Ordinary shares		Share premium account		Total
		Thousands		£'000		£'000		£'000
At 1 December 2017		45,641		913		35,831		36,744
Issue of shares on exercise of share options		202		4		127		131
At 30 November 2018		45,843		917		35,958		36,875

In February, March, April, June, July and September 2018, 51,049 ordinary shares of 2 pence each were issued on the exercise of Save As You Earn share options for cash consideration of £128,000.  In September 2018, 151,375 ordinary shares of 2 pence each were issued on the exercise of Long Term Share Plan share options for cash consideration of £3,000. 

The Group uses an Employee Benefit Trust (EBT) to purchase shares in the Company to satisfy entitlements, granted since the Company's AGM in 2015, under the Group's Long Term Incentive Plan.  During the year the Group purchased 84,000 ordinary shares of 2 pence each (2017: 92,000) for a total consideration of £416,000 (2017: £475,000).  The cost of the shares held by the EBT is deducted from retained earnings.  The EBT is financed by a repayable-on-demand loan from the Group of £968,000 (2017: £552,000).  As at 30 November 2018 the EBT held a total of 196,000 ordinary shares of 2 pence each (2017: 112,000) at a cost of £968,000 (2017: £552,000) and a market value of £833,000 (2017: £521,000).

12.          Acquisitions

On 7 December 2017 the Group, through its subsidiary Seal Analytical Limited, purchased 100% of the share capital of Rohasys B.V. ("Rohasys") in order to increase the Group's offering in the laboratory market. The trade is the manufacture of robotic sample handling systems and is based in the Netherlands.  The total maximum consideration is €3,548,000 (£3,118,000); €896,000 (£787,000) of this was paid in cash on the acquisition date, together with €502,000 (£441,000) to settle the outstanding loan.  The balance is contingent on financial performance and payable in instalments until 2021; the first €250,000 (£226,000) instalment of contingent consideration was paid in March 2018. 

The contingent consideration is dependent on Rohasys meeting sales and profit targets, and will be settled in cash.  Management has forecast that payment of 99% of the maximum contingent consideration, €2,136,000 (£1,877,000), is the most probable outcome.  This was discounted to €1,878,000 (£1,650,000) using the discount rate of 14.5%, calculated for Rohasys.  A reduction in the annual sales by €200,000 (£177,000), which is considered a reasonable possible alternative, would reduce the future contingent liability by €30,000 (£27,000).  In the period since acquisition, the business has contributed €2,378,000 (£2,101,000) sales and €83,000 (£73,000) operating profit to the Group results.  The direct costs of acquisition charged to the income statement were £35,000.  If Rohasys had been consolidated from 1 December 2017, the consolidated statement of income would show pro-forma revenue of £128,823,000 and underlying operating profit of £12,886,000.

						Total
						£'000
Purchase consideration:
Cash paid						787
Loan repaid						441
Contingent consideration						1,650
Total purchase consideration						2,878
Fair value of net assets acquired						(1,070)
Goodwill						1,808

12.          Acquisitions continued

Provisional recognised amounts of identifiable assets acquired and liabilities assumed							Fair value
							£'000
Property, plant and equipment							22
Software							2
Trade name							72
Knowhow							318
Customer list							528
Inventory							393
Trade receivables							369
Trade payables							(425)
Deferred tax liabilities							(229)
Other working capital (net)							20
Net assets acquired							1,070
Purchase consideration settled in cash							787
Cash outflow on acquisition							787

An independent valuation of the identifiable intangible assets has been carried out in the period.  The goodwill is attributable to the non-contractual relationships, the synergies between the business acquired and the existing operations of the Group and the potential to develop the technologies acquired. The goodwill recognised is attributable to the Laboratory division and is not expected to be deductible for income tax purposes.  The purchase has been accounted for as an acquisition. The intangible assets arising on the acquisition are to be written off between three and ten years.

On 28 February 2018 the Group, through its subsidiary Porvair Filtration Group Inc., purchased the net assets of Keystone Filter ("Keystone"), a division of CECO Environmental Corp. The trade is the design and manufacture of a range of filter cartridges and housings for the food and beverage, drinking water, and chemical process markets and is based in the USA.  The total consideration is $7,190,000 (£5,219,000); $5,290,000 (£3,840,000) of this was paid on 28 February 2018, with the balance deferred and paid in August 2018.  In the period since acquisition, the business has contributed $2,342,000 (£1,747,000) sales and $133,000 (£99,000) of underlying operating profit to the Group results.  The direct costs of acquisition charged to the income statement were $77,000 (£56,000).  If Keystone had been consolidated from 1 December 2017, the consolidated statement of income would show pro-forma revenue of £129,463,000 and underlying operating profit of £12,999,000

						Total
						£'000
Purchase consideration:
Cash paid						3,840
Deferred consideration						1,379
Total purchase consideration						5,219
Fair value of net assets acquired						(2,991)
Goodwill						2,228

12.          Acquisitions continued

Provisional recognised amounts of identifiable assets acquired and liabilities assumed							Fair value
							£'000
Property, plant and equipment							170
Trade name							208
Order backlog							73
Customer list							2,019
Inventory							372
Trade receivables							325
Trade payables							(171)
Other working capital (net)							(5)
Net assets acquired							2,991
Purchase consideration settled in cash							3,840
Cash outflow on acquisition							3,840

An independent valuation of the identifiable intangible assets has been carried out in the period.  The goodwill is attributable to the non-contractual relationships, the synergies between the business acquired and the existing operations of the Group and the potential to develop the technologies acquired. The goodwill recognised is attributable to the Aerospace & Industrial division and is expected to be deductible for income tax purposes.  The purchase has been accounted for as an acquisition. The intangible assets arising on the acquisition are to be written off between three and ten years.

13.          Deferred and contingent consideration on acquisitions

	Rohasys		Keystone		JG Finneran Associates Inc.		Total
	£'000		£'000		£'000		£'000
At 1 December 2017	-		-		4,432		4,432
Purchase consideration in the year	2,878		5,219		-		8,097
Cash paid in the year	(1,454)		(5,302)		(2,251)		(9,007)
Recognised in the income statement	95		-		-		95
Exchange movements	22		83		170		275
At 30 November 2018	1,541		-		2,351		3,892

Included within other payables	2018 £'000		2017 £'000
Deferred and contingent consideration - current	2,884		2,216
Deferred and contingent consideration - non-current	1,008		2,216
At 30 November	3,892		4,432

14.          Cash generated from operations

			2018 £'000		2017 £'000
Operating profit			12,868		12,339
Post-employment benefits			(136)		(963)
Fair value movement of derivatives through profit and loss			40		(1,461)
Share based payments			610		508
Depreciation, amortisation and impairment			3,607		3,228
Operating cash flows before movement in working capital			16,989		13,651
Increase in inventories			(2,494)		(523)
Increase in trade and other receivables			(1,570)		(287)
Increase in payables			3,216		545
Decrease in provisions			(806)		(1,129)
Increase in working capital			(1,654)		(1,394)
Cash generated from operations			15,335		12,257

15.          Basis of preparation 

The results for the year ended 30 November 2018 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union as at 30 November 2018.  The financial information contained in this announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.  The financial information has been extracted from the financial statements for the year ended 30 November 2018, which have been approved by the Board of Directors and on which the auditors have reported without qualification.  The financial statements will be delivered to the Registrar of Companies after the Annual General Meeting.  The financial statements for the year ended 30 November 2017, upon which the auditors reported without qualification, have been delivered to the Registrar of Companies.

16.          Annual general meeting

The Company's Annual General Meeting will be held at 11.00 a.m. on Thursday 11 April 2019 at the offices of Porvair Sciences Limited, Clywedog Road South, Wrexham Industrial Estate, Wrexham, LL13 9XS.

17.          Related parties

There were no related party transactions in the year ended 30 November 2018.

18.          Responsibility Statement

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

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

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

The Directors of Porvair are listed in the Porvair Annual Report for the year ended 30 November 2017.  Charles Matthews resigned from the Board on 17 April 2018.  A list of current Directors is maintained on the Porvair website www.porvair.com.

Copies of full accounts will be sent to shareholders in March 2019. Additional copies will be available from www.porvair.com. 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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