Operating review

Overview of 2020 and impact of Covid-19

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

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

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

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

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

 

 

Financial Results

 

	2020		2019		Change
	£m		£m		%
Revenue	135.0		144.9		(7)
Operating profit	12.6		14.8		(15)
Adjusted operating profit*	13.6		15.6		(13)
Adjusted profit before tax*	12.6		14.8		(15)
Profit before tax	11.6		14.0		(17)
Adjusted earnings per share*	21.6p		25.3p		(15)
Earnings per share	18.4p		23.6p		(22)
Cash generated from operations	13.2		16.8
Net cash at 30 November	4.9		4.0

* see note 1 and note 3

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

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

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

	5 years		10 years	15 years
	CAGR*		CAGR*	CAGR*
Revenue growth	7%		8%	8%
Earnings per share growth	3%		13%	11%
Adjusted earnings per share growth	6%		15%	13%
	£m		£m	£m
Cash from operations	70.9		127.9	154.4
Investment in acquisitions and capital expenditure	50.5		72.2	86.3

* Compound annual growth rate

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

Strategic statement and business model

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

Porvair businesses have certain key characteristics in common:

·      Specialist design or engineering skills are required;

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

·      Products are typically designed into a system that will have a long life-cycle and must perform to a given specification.

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

This leads the Group to:

1.   Focus on markets with long term growth potential.

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

3.   Make new product development a core business activity.

4.   Establish geographic presence where end-markets require.

5.   Invest in both organic and acquired growth.

Therefore:

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

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

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

·      Our geographic presence follows the markets we serve.  In the last twelve months: 45% of revenue was in the Americas; 26% in Asia; 18% in Continental Europe; 10% in the UK; and 1% in Africa.  The Group has plants in the US, UK, Germany, the Netherlands and China.  In the last twelve months, 47% of revenue was manufactured in the US, 31% in the UK, 17% in Continental Europe and 5% in China.

·      We aim to meet dividend and investment needs from free cash flow and modest borrowing facilities.  In recent years we have expanded manufacturing capacity in the UK, Germany, US and China and made several acquisitions.  All investments are subject to a hurdle rate analysis based on strategic and financial priorities.

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 process reliability. Nuclear filters confine fissile materials.  Metal Melt Quality filters reduce waste and help improve the strength to weight ratio of metal components. 

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

·      Porvair's ESG management framework and goals;

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

·      ESG metrics and results; and

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

 

 

Aerospace & Industrial

 

	2020		2019		Change
	£m		£m		%
Revenue	62.0		64.6		(4)
Operating profit	8.0		8.2		(3)
Adjusted operating profit*	6.3		8.5		(26)

* see note 2

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

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

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

Laboratory

	2020		2019		Change
	£m		£m		%
Revenue	42.0		43.7		(4)
Inter segment revenue	(1.9)		(2.4)
External revenue	40.1		41.3		(3)
Operating profit	7.0		6.4		9
Adjusted operating profit*	6.7		6.6		2

* see note 2

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

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

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

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

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

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

Metal Melt Quality

	2020		2019		Change
	£m		£m		%
Revenue	32.9		39.0		(16)
Operating (loss)/ profit	(0.2)		2.8		(106)
Adjusted operating profit*	2.8		2.8		(1)

* see note 2

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

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

Dividends and Pension

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

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

Staff

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

Current trading and outlook

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

 

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

 

Ben Stocks

Group Chief Executive

29 January 2021

 

 

 

 

 

 

Financial review

 

Group results

	2020		2019		Change
	£m		£m		%
Revenue	135.0		144.9		(7)
Operating profit	12.6		14.8		(15)
Profit before tax	11.6		14.0		(17)
Profit after tax	8.4		10.8		(22)

 

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

Alternative performance measures - profit

	2020		2019		Change
	£m		£m		%
Adjusted operating profit	13.6		15.6		(13)
Adjusted profit before tax	12.6		14.8		(15)
Adjusted profit after tax	9.9		11.6		(14)

 

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

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

·      the impact of acquiring businesses:

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

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

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

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

o  A net credit of £4.0 million (2019: £nil) related to the large gasification projects.  Settlement of outstanding warranty issues and the cancellation of performance bonds has allowed the Group to release £5.1 million (2019: £nil) from its provisions.  Related to the release, the Group has written off a £1.1 million (2019: £nil) receivable due over the next five years; and

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

 

Group operating performance

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

Impact of exchange rate movements on performance

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

	2020		2019
Average rate for translating the results:
US $ denominated operations	$1.28:£		$1.27:£
Euro denominated operations	€1.13:£		€1.14:£
Closing rate for translating the balance sheet:
US $ denominated operations	$1.34:£		$1.29:£
Euro denominated operations	€1.12:£		€1.17:£

 

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

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

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

Finance costs

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

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

Tax

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

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

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

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

Total equity and distributable reserves

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

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

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

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

Return on capital employed

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

 

 

Cash flow

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

Cash flow	2020		2019
	£m		£m
Operating cash flow before working capital	19.5		18.1
Working capital movement	(6.3)		(1.3)
Cash generated from operating activities	13.2		16.8
Interest	(0.3)		(0.3)
Tax	(2.5)		(3.3)
Capital expenditure net of disposals	(3.6)		(4.3)
	6.8		8.9
Acquisitions	(0.6)		(9.8)
Dividends	(2.3)		(2.1)
Share issue proceeds	0.4		0.5
Purchase of EBT shares	(0.7)		(0.6)
Increase in bank borrowings	1.5		4.6
Repayment of right of use lease liabilities	(2.3)		-
Net cash increase in the year	2.8		1.5
Net debt reconciliation	2020		2019
	£m		£m
Net cash reported at 30 November	4.0		6.6
IFRS 16 transition adjustment	(15.2)		-
Net cash at 1 December	(11.2)		6.6
Increase in cash and cash equivalents	2.8		1.5
Increase of borrowings	(1.5)		(4.6)
Decrease in lease liabilities	1.8		-
Exchange (losses)/gains	(0.6)		0.5
Net (debt)/cash at 30 November	(8.7)		4.0
Net cash and bank debt	4.9		4.0
Lease liabilities	(13.6)		-
Net (debt)/cash at 30 November	(8.7)		4.0

 

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

 

 

Provisions, contingent liabilities and performance bonds

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

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

 

			$'000		€'000
Advanced payment bonds			-		162
Performance bonds			2,549		842
At 30 November 2020			2,549		1,004
			$'000		€'000
Performance bonds			8,534		638
At 30 November 2019			8,534		638

 

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

Capital expenditure

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

Acquisitions

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

Pension schemes

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

	2020		2019
	£m		£m
Charged to operating costs:
Defined contribution schemes	2.4		2.1
Defined benefit scheme	0.7		0.6
Additional pension provision	0.2		-
Pension protection levy	0.1		0.1
Total pensions charged to operating costs	3.4		2.8
Charged to interest payable:
Defined benefit scheme	0.3		0.4
Total pensions charged to interest payable	0.3		0.4
Total pension costs	3.7		3.2

 

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

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

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

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

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

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

Borrowings and bank finance

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

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

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

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

Adoption of IFRS 16

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

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

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

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

 

	2020	2020
	Adjusted operating profit £m	Adjusted profit before tax £m
As reported	13.6	12.6
Operating lease rentals, removed from operating costs	(2.3)	(2.3)
Depreciation on leases - right of use assets, added to operating costs	2.1	2.1
Interest on lease liabilities	-	0.4
Pre-IFRS 16	13.4	12.8

Finance and treasury policy

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

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

International trade 

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

 

 

 

Chris Tyler

Group Finance Director

29 January 2021

 

 

 

Consolidated income statement

For the year ended 30 November

		Note	2020		2019
Continuing operations			£'000		£'000
Revenue		1,2	135,011		144,932
Cost of sales			(91,469)		(97,505)
Gross profit			43,542		47,427
Distribution costs			(2,373)		(2,259)
Administrative expenses			(28,612)		(30,381)
Adjusted operating profit		1,2	13,571		15,592
Adjustments
Amortisation of acquired intangibles		1	(611)		(588)
Other acquisition related adjustments		1	442		(217)
Restructuring		1	(2,246)		-
Settlement of project related warranties		1	4,005		-
Impairment of tangible assets		1	(2,604)		-
Operating profit		1,2	12,557		14,787
Finance income			1		7
Finance costs			(1,001)		(809)
Profit before income tax		1,2	11,557		13,985
Adjusted income tax expense			(2,642)		(3,220)
Tax effect of adjustments to operating profit		1	(472)		-
Income tax expense			(3,114)		(3,220)
Profit for the year			8,443		10,765
Profit attributable to:
Owners of the parent			8,443		10,768
Non-controlling interests			-		(3)
Profit for the year			8,443		10,765
Earnings per share (basic)		3	18.4p		23.6p
Adjusted earnings per share (basic)		3	21.6p		25.3p
Earnings per share (diluted)		3	18.4p		23.5p
Adjusted earnings per share (diluted)		3	21.6p		25.3p

 

Consolidated statement of comprehensive income

For the year ended 30 November

		2020 £'000		2019 £'000
Profit for the year		8,443		10,765
Other comprehensive (expense)/income:
Items that will not be reclassified to profit and loss
Losses in defined benefit pension plans net of tax		(1,334)		(2,278)
Items that may subsequently be reclassified to profit and loss
Exchange differences on translation of foreign subsidiaries		(1,713)		(1,212)
Tax relating to components of other comprehensive income		-		149
Changes in fair value of forex contracts held as a cash flow hedge		(35)		35
		(1,748)		(1,028)
Net other comprehensive expense		(3,082)		(3,306)
Total comprehensive income for the year		5,361		7,459
Comprehensive income attributable to:
Owners of the parent		5,361		7,462
Non-controlling interests		-		(3)
Total comprehensive income for the year		5,361		7,459

 

 

 

Consolidated balance sheet

As at 30 November

	Note		2020 £'000		2019 £'000
Non-current assets
Property, plant and equipment	5		20,716		22,779
Right of use assets	6		12,762		-
Goodwill and other intangible assets	7		70,039		71,512
Deferred tax asset			2,614		2,360
Other receivables			-		1,048
			106,131		97,699
Current assets
Inventories			23,355		23,197
Trade and other receivables			20,674		24,153
Derivative financial instruments			23		48
Cash and cash equivalents			15,563		12,889
			59,615		60,287
Current liabilities
Trade and other payables	8		(20,197)		(25,989)
Current tax liabilities			(192)		(564)
Borrowings	9		(1,379)		-
Lease liabilities	6		(2,007)		-
Provisions	10		(4,365)		(9,526)
			(28,140)		(36,079)
Net current assets			31,475		24,208
Non-current liabilities
Borrowings	9		(9,303)		(8,875)
Deferred tax liability			(2,839)		(2,588)
Retirement benefit obligations			(15,395)		(14,450)
Other payables			-		(417)
Lease liabilities	6		(11,609)		-
Provisions	10		(268)		(242)
			(39,414)		(26,572)
Net assets			98,192		95,335
Capital and reserves
Share capital	11		923		921
Share premium account	11		36,927		36,504
Cumulative translation reserve			7,645		9,358
Retained earnings			52,697		48,552
Equity attributable to owners of the parent			98,192		95,335
Total equity			98,192		95,335

 

 

Consolidated cash flow statement

For the year ended 30 November

	Note		2020 £'000		2019 £'000
Cash flows from operating activities
Cash generated from operations	14		13,220		16,758
Interest paid			(347)		(343)
Tax paid			(2,551)		(3,256)
Net cash generated from operating activities			10,322		13,159
Cash flows from investing activities
Interest received			1		7
Acquisition of subsidiaries (net of cash acquired)	12		(588)		(9,761)
Purchase of property, plant and equipment	5		(3,458)		(3,943)
Purchase of intangible assets	7		(166)		(363)
Net cash used in investing activities			(4,211)		(14,060)
Cash flows from financing activities
Proceeds from issue of ordinary share capital	11		425		550
Purchase of Employee Benefit Trust shares			(726)		(623)
Receipt of Payment Protection Plan loan			1,507		-
Increase in borrowings			-		4,648
Dividends paid to shareholders	4		(2,253)		(2,146)
Repayment of right of use lease liabilities	6		(2,297)		-
Net cash (used in)/from financing activities			(3,344)		2,429
Net increase in cash and cash equivalents			2,767		1,528
Exchange losses on cash and cash equivalents			(93)		(131)
			2,674		1,397
Cash and cash equivalents at 1 December			12,889		11,492
Cash and cash equivalents at 30 November			15,563		12,889

 

Reconciliation of net cash flow to movement in net cash

		2020 £'000		2019 £'000
Net funds at 30 November 2019		4,014		6,625
IFRS 16 adjustment for lease liabilities		(15,218)		-
Net (debt)/funds at 1 December 2019		(11,204)		6,625
Net increase in cash and cash equivalents		2,767		1,528
Decrease in lease liabilities		1,778		-
Increase in borrowings		(1,507)		(4,648)
Effects of exchange rate changes		(569)		509
Net (debt)/funds at 30 November		(8,735)		4,014

 

Net cash and bank debt		4,881		4,014
Lease liabilities		(13,616)		-
Net (debt)/funds at 30 November		(8,735)		4,014

 

 

 Consolidated statement of changes in equity

	Share capital £'000	Share premium account £'000	Cumulative translation reserve £'000	Retained earnings £'000	Total £'000	Non-controlling interest £'000	Total £'000
Balance at 30 November 2018	917	35,958	10,570	42,024	89,469	3	89,472
IFRS 15 adjustment	-	-	-	(57)	(57)	-	(57)
Balance at 1 December 2018	917	35,958	10,570	41,967	89,412	3	89,415
Profit for the year	-	-	-	10,768	10,768	-	10,768
Other comprehensive income	-	-	(1,212)	(2,094)	(3,306)	-	(3,306)
Total comprehensive income for the year	-	-	(1,212)	8,674	7,462	-	7,462
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(623)	(623)	-	(623)
Employee share option schemes:
- value of employee services net of tax	-	-	-	680	680	-	680
Proceeds from shares issued	4	546	-	-	550	-	550
Dividends paid (note 4)	-	-	-	(2,146)	(2,146)	-	(2,146)
Total transactions with owners recognised directly in equity	4	546	-	(2,089)	(1,539)	-	(1,539)
Adjustment arising from change in non-controlling interest	-	-	-	-	-	(3)	(3)
Balance at 30 November 2019	921	36,504	9,358	48,552	95,335	-	95,335
Profit for the year	-	-	-	8,443	8,443	-	8,443
Other comprehensive expense	-	-	(1,713)	(1,369)	(3,082)	-	(3,082)
Total comprehensive (expense)/income for the year	-	-	(1,713)	7,074	5,361	-	5,361
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(726)	(726)	-	(726)
Employee share option schemes:
- value of employee services net of tax	-	-	-	50	50	-	50
Proceeds from shares issued	2	423	-	-	425	-	425
Dividends paid (note 4)	-	-	-	(2,253)	(2,253)	-	(2,253)
Total transactions with owners recognised directly in equity	2	423	-	(2,929)	(2,504)	-	(2,504)
Balance at 30 November 2020	923	36,927	7,645	52,697	98,192	-	98,192

 

Notes

 

1.             Alternative performance measures

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

 

Alternative revenue measures

		2020		2019		Growth
Aerospace & Industrial		£'000		£'000		%
Underlying revenue		48,474		60,036		(19)
Acquisitions		11,313		2,452
Revenue at constant currency		59,787		62,488		(4)
Exchange		2,193		2,155
Revenue as reported		61,980		64,643		(4)
Laboratory
Revenue at constant currency		37,829		38,853		(3)
Exchange		2,298		2,427
Revenue as reported		40,127		41,280		(3)
Metal Melt Quality
Revenue at constant currency		30,020		35,377		(15)
Exchange		2,884		3,632
Revenue as reported		32,904		39,009		(16)
Group
Underlying revenue		116,323		134,266		(13)
Acquisitions		11,313		2,452
Revenue at constant currency		127,636		136,718		(7)
Exchange		7,375		8,214
Revenue as reported		135,011		144,932		(7)

 

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

 

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

 

 

1.             Alternative performance measures continued

 

Alternative profit measures

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

 

				2020							2019
		Adjusted £'000		Adjustments £'000			Reported £'000			Adjusted £'000	Adjustments £'000		Reported £'000
Operating profit			13,571		(1,014)	12,557			15,592		(805)	14,787
Finance income			1		-	1			7		-	7
Finance costs			(1,001)		-	(1,001)			(809)		-	(809)
Profit before income tax			12,571		(1,014)	11,557			14,790		(805)	13,985
Income tax expense			(2,642)		(472)	(3,114)			(3,220)		-	(3,220)
Profit after tax			9,929		(1,486)	8,443			11,570		(805)	10,765

 

	2020		2019
	£'000		£'000
Amortisation of acquired intangibles	(611)		(588)
Other acquisition related adjustments	442		(217)
Restructuring	(2,246)		-
Settlement of project related warranties	4,005		-
Impairment of tangible assets	(2,604)		-
Adjustments affecting operating profit	(1,014)		(805)
Tax effect of adjustments	(472)		-
Total adjusting items	(1,486)		(805)

 

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

·      the impact of acquiring businesses:

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

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

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

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

o  A net release of £4.0 million (2019: £nil) related to the large gasification projects.  Settlement of outstanding warranty issues and the cancellation of performance bonds has allowed the Group to release £5.1 million (2019: £nil) from its provisions.  Related to the release, the Group has written off a £1.1 million (2019: £nil) receivable due over the next five years; and

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

Return on capital employed

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

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

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

 

 

 

2.             Segment information

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

 

2020	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	61,990		42,012		32,904		-		136,906
Inter-segment revenue	(10)		(1,885)		-		-		(1,895)
Revenue	61,980		40,127		32,904		-		135,011
Adjusted operating profit/(loss)	6,279		6,718		2,803		(2,229)		13,571
Amortisation of acquired intangibles	(467)		(144)		-		-		(611)
Other acquisition related adjustments	-		442		-		-		442
Restructuring	(1,566)		(55)		(625)		-		(2,246)
Settlement of project related warranties	4,005		-		-		-		4,005
Impairment of tangible assets	(267)		-		(2,337)		-		(2,604)
Operating profit/(loss)	7,984		6,961		(159)		(2,229)		12,557
Interest payable and similar charges	-		-		-		(1,000)		(1,000)
Profit/(loss) before income tax	7,984		6,961		(159)		(3,229)		11,557
Adjusted income tax expense	-		-		-		(2,642)		(2,642)
Tax effect of adjustments to operating profit	-		-		-		(472)		(472)
Income tax expense	-		-		-		(3,114)		(3,114)
Profit/(loss) for the year	7,984		6,961		(159)		(6,343)		8,443

 

2019	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	64,696		43,654		39,011		-		147,361
Inter-segment revenue	(53)		(2,374)		(2)		-		(2,429)
Revenue	64,643		41,280		39,009		-		144,932
Adjusted operating profit/(loss)	8,527		6,597		2,845		(2,377)		15,592
Amortisation of acquired intangibles	(337)		(251)		-		-		(588)
Other acquisition related adjustments	-		36		-		(253)		(217)
Operating profit/(loss)	8,190		6,382		2,845		(2,630)		14,787
Interest payable and similar charges	-		-		-		(802)		(802)
Profit/(loss) before income tax	8,190		6,382		2,845		(3,432)		13,985
Income tax expense	-		-		-		(3,220)		(3,220)
Profit/(loss) for the year	8,190		6,382		2,845		(6,652)		10,765

 

 

 

2.             Segment information continued

 

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

 

Segment assets and liabilities

 

At 30 Nov 2020	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	73,459		42,926		30,860		2,938		150,183
Cash and cash equivalents	-		-		-		15,563		15,563
Total assets	73,459		42,926		30,860		18,501		165,746
Segmental liabilities	(22,013)		(11,875)		(5,548)		(2,041)		(41,477)
Retirement benefit obligations	-		-		-		(15,395)		(15,395)
Bank overdraft and loans	-		-		-		(10,682)		(10,682)
Total liabilities	(22,013)		(11,875)		(5,548)		(28,118)		(67,554)

 

At 30 Nov 2019	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	73,000		38,289		31,310		2,498		145,097
Cash and cash equivalents	-		-		-		12,889		12,889
Total assets	73,000		38,289		31,310		15,387		157,986
Segmental liabilities	(23,721)		(9,653)		(4,243)		(1,709)		(39,326)
Retirement benefit obligations	-		-		-		(14,450)		(14,450)
Bank overdraft and loans	-		-		-		(8,875)		(8,875)
Total liabilities	(23,721)		(9,653)		(4,243)		(25,034)		(62,651)

 

Geographical analysis

	2020				2019
	By destination £'000		By origin £'000		By destination £'000		By origin £'000
Revenue
United Kingdom	13,990		41,343		16,394		50,058
Continental Europe	24,136		23,118		21,844		13,543
United States of America	54,121		63,811		67,214		75,336
Other NAFTA	5,296		-		2,310		-
South America	1,883		-		2,038		-
Asia	34,562		6,739		33,847		5,995
Africa	1,023		-		1,285		-
	135,011		135,011		144,932		144,932

 

 

 

3.             Earnings per share

	2020				2019
Total	Earnings     £'000	Weighted average number of shares	Per share amount   (pence)		Earnings     £'000	Weighted average number of shares	Per share amount   (pence)
Earnings attributable to ordinary shareholders	8,443				10,768
Shares in issue		46,171,382				45,871,417
Shares owned by the Employee Benefit Trust		(208,375)				(183,308)
Basic earnings	8,443	45,963,007	18.4		10,768	45,688,109	23.6
Effect of dilutive securities - share options	-	21,666	-		-	47,240	(0.1)
Diluted earnings	8,443	45,984,673	18.4		10,768	45,735,349	23.5

 

	2020				2019
Adjusted	Earnings     £'000	Weighted average number of shares	Per share amount   (pence)		Earnings     £'000	Weighted average number of shares	Per share amount   (pence)
Earnings attributable to ordinary shareholders	8,443				10,768
Adjusting items (note 1)	1,486				805
Adjusted earnings attributable to ordinary shareholders	9,929				11,573
Adjusted basic earnings	9,929	45,963,007	21.6		11,573	45,688,109	25.3
Adjusted diluted earnings	9,929	45,984,673	21.6		11,573	45,735,349	25.3

 

4.             Dividends per share

	2020			2019
	Per share	£'000		Per share	£'000
Final dividend paid	3.2p	1,472		3.0p	1,368
Interim dividend paid	1.7p	781		1.7p	778
	4.9p	2,253		4.7p	2,146

 

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

 

 

 

5.            Property, plant and equipment

		Land and buildings		Assets in the course of construction		Plant, machinery and equipment		Total
Cost		£'000		£'000		£'000		£'000
At 1 December 2019		11,937		1,388		41,809		55,134
Reclassification		-		(981)		981		-
Additions		854		466		2,138		3,458
Disposals		-		-		(1,355)		(1,355)
Exchange differences		(242)		(15)		(546)		(803)
At 30 November 2020		12,549		858		43,027		56,434

 

Depreciation
At 1 December 2019		(3,694)		-		(28,661)		(32,355)
Charge for the year		(401)		-		(2,398)		(2,799)
Impairment charge		-		-		(2,261)		(2,261)
Disposals		-		-		1,217		1,217
Exchange differences		73		-		407		480
At 30 November 2020		(4,022)		-		(31,696)		(35,718)

 

Net book value
At 30 November 2020		8,527		858		11,331		20,716
At 30 November 2019		8,243		1,388		13,148		22,779

 

6.             Right of use assets and lease liabilities

				Land and buildings		Plant, machinery and equipment		Total
Cost				£'000		£'000		£'000
At 30 November 2019				-		-		-
IFRS 16 transition adjustment				14,055		534		14,589
At 1 December 2019				14,055		534		14,589
New leases				5		170		175
Exit from leases				(44)		(69)		(113)
Exchange differences				145		14		159
At 30 November 2020				14,161		649		14,810

 

Depreciation
At 1 December 2019				-		-		-
Charge for the year				(1,876)		(179)		(2,055)
Exit from leases				-		34		34
Exchange differences				(24)		(3)		(27)
At 30 November 2020				(1,900)		(148)		(2,048)

 

Net book value
At 30 November 2020				12,261		501		12,762
At 30 November 2019				-		-		-

 

 

 

6.             Right of use assets and lease liabilities - continued

Lease liabilities		Total
		£'000
At 30 November 2019		-
IFRS 16 transition adjustment		(15,218)
At 1 December 2019		(15,218)
New leases		(175)
Exit from leases		93
Lease repayments		2,297
Interest on lease liabilities		(437)
Exchange differences		(176)
Net book value at 30 November 2020		(13,616)
Repayable within one year		(2,007)
Repayable after one year		(11,609)
Net book value at 30 November 2020		(13,616)

 

7.             Goodwill and other intangible assets

	Goodwill		Development expenditure capitalised		Software capitalised		Trademarks, knowhow and other intangibles		Total
	£'000		£'000		£'000		£'000		£'000
Net book amount at 1 December 2019	65,668		154		805		4,885		71,512
Additions	-		-		166		-		166
Amortisation charges	-		(70)		(166)		(671)		(907)
Exchange differences	(797)		(2)		13		54		(732)
Net book amount at 30 November 2020	64,871		82		818		4,268		70,039

 

At 30 November 2020	Goodwill		Development expenditure capitalised		Software capitalised		Trademarks, knowhow and other intangibles		Total
	£'000		£'000		£'000		£'000		£'000
Cost	83,509		894		1,803		7,484		93,690
Accumulated amortisation and impairment	(18,638)		(812)		(985)		(3,216)		(23,651)
Net book amount	64,871		82		818		4,268		70,039

 

 

 

 

8.             Trade and other payables

Amounts falling due within one year:	2020 £'000		2019 £'000
Trade payables	10,353		14,728
Taxation and social security	1,060		1,016
Other payables	950		897
Accruals and contract liabilities	7,834		9,348
At 30 November	20,197		25,989

 

9.             Borrowings

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

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

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

 

10.          Provisions

				Dilapidations		Warranty		Total
				£'000		£'000		£'000
At 1 December 2019				242		9,526		9,768
Charged to the consolidated income statement:
-       Unwinding of discount				26		-		26
-       Warranty release				-		(5,091)		(5,091)
-       Warranty charge				-		652		652
Utilised:
-       Warranty				-		(720)		(720)
Exchange reserve				-		(2)		(2)
At 30 November 2020				268		4,365		4,633

 

				Dilapidations		Warranty		Total
				£'000		£'000		£'000
At 30 November 2018				219		506		725
Recognised on adoption of IFRS 15				-		8,187		8,187
At 1 December 2018				219		8,693		8,912
Acquired				-		136		136
Charged to the consolidated income statement:
-       Unwinding of discount				23		-		23
-       Warranty charge				-		801		801
Utilised:
-       Warranty				-		(96)		(96)
Exchange reserve				-		(8)		(8)
At 30 November 2019				242		9,526		9,768

 

	2020		2019
	£'000		£'000
Current	4,365		9,526
Non-current	268		242
Net book value at 30 November 2020	4,633		9,768

 

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

10.          Provisions - continued

In December 2019, a US$0.9 million (£0.7 million) performance bond was called by the customer, the amount was paid and charged to provisions. Subsequently, progress has been made on resolving warranty risks and US$5.0 million of performance bonds have lapsed. Consequently £5.1 million of provisions are no longer considered necessary and have been released.

 

11.          Share capital and premium

		Number of shares		Ordinary shares		Share premium account		Total
		Thousands		£'000		£'000		£'000
At 1 December 2019		46,041		921		36,504		37,425
Issue of shares on exercise of share options		115		2		423		425
At 30 November 2020		46,156		923		36,927		37,850

 

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

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

 

12.          Deferred and contingent consideration on acquisitions

			Rohasys		Total
			£'000		£'000
At 1 December 2019			948		948
Cash paid in the year			(588)		(588)
Release of contingent consideration			(442)		(442)
Release of discount			43		43
Exchange movements			39		39
At 30 November 2020			-		-

 

Included within other payables	2020 £'000		2019 £'000
Deferred and contingent consideration - current	-		531
Deferred and contingent consideration - non-current	-		417
At 30 November	-		948

 

 

 

13.          Contingent liabilities

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

			$'000		€'000
Advanced payment bonds			-		162
Performance bonds			2,549		842
At 30 November 2020			2,549		1,004

 

			$'000		€'000
Performance bonds			8,534		638
At 30 November 2019			8,534		638

 

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

14.          Cash generated from operations

			2020 £'000		2019 £'000
Operating profit			12,557		14,787
Post-employment benefits			(1,288)		(1,003)
Fair value movement of derivatives through profit and loss			(10)		(52)
IFRS 15 adjustment			-		(88)
Share based payments			89		585
Depreciation and amortisation of property, plant and equipment, and intangibles			3,706		3,743
Depreciation of right of use assets			2,055		-
Impairment of property, plant and equipment			2,261		-
Loss on disposal of property, plant and equipment and intangibles			162		122
Operating cash flows before movement in working capital			19,532		18,094
Increase in inventories			(276)		(2,351)
Decrease/(increase) in trade and other receivables			4,139		(707)
Decrease in payables			(5,084)		(7,209)
(Decrease)/increase in provisions			(5,091)		8,931
Increase in working capital			(6,312)		(1,336)
Cash generated from operations			13,220		16,758

 

15.          Basis of preparation 

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

 

 

16.          Annual general meeting

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

17.          Related parties

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

18.          Responsibility Statement

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

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

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

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

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