Operating review

2023 was another year of record profits for the Group and another year when these have been achieved, despite variable trading patterns across markets served.

Demand in aerospace and petrochemical markets recovered strongly from post-pandemic lows. Water quality demand remained steady. Order books for industrial and laboratory consumables started the year strongly but declined from the second quarter as customers unwound inventory positions built up in 2022 and early 2023. By the end of the year, manufacturing lead times had mostly returned to more normal levels.

The Group navigated these inconsistent conditions satisfactorily. Productivity investments made in prior years helped support margins, as did careful management of input costs and pricing. As a result, while reported revenues were up 2%, adjusted operating profit was up 10%, a level of earnings growth consistent with the Group's five, ten and fifteen year performance. Strong cash generation meant that the year finished with £14.1 million of net cash on the balance sheet after spending around £24 million on acquisitions, capital expenditure, dividends and pension costs.

Porvair's devolved management structure is helpful in such trading conditions, enabling key commercial decisions to be made close to the customer. Annual objectives for general managers were again to deliver earnings growth, cash generation and selected ESG metrics. Details of our ESG programme are provided in a separate report published alongside these financial results.

While trading patterns across the Group in 2023 were variable, a degree of inconsistency is not unusual. It is rare that all parts of the Group perform as planned. We serve a range of markets in different parts of the world and trading can be affected by both local and global events. However, Porvair benefits from underlying growth trends that have not changed in 2023: tightening environmental regulation; the growth of analytical science; the need for clean water; the development of carbon-efficient transportation; the replacement of plastic and steel by aluminium; and the drive for manufacturing process quality and efficiency.

Financial results

	2023		2022		Growth
	£m		£m		%
Revenue	176.0		172.6		2
Operating profit	21.2		19.8		7
Adjusted operating profit*	22.6		20.5		10
Profit before tax	20.1		18.7		7
Adjusted profit before tax*	21.4		19.4		10
	Pence		Pence
Earnings per share	34.8		32.1		8
Adjusted earnings per share*	37.2		33.2		12
	£m		£m
Cash generated from operations	24.1		22.8
Net cash (excluding lease liabilities)	14.1		18.3

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

Revenue increased by 2% to £176.0 million. Profit before tax increased by 7%. Adjusted profit before tax grew by 10% and adjusted earnings per share by 12%.

 

Strategy and purpose

Porvair's strategy and purpose have remained consistent for 19 years, a period that now encompasses two recessions and a pandemic.  The Group's record for growth, cash generation and investment is:

	5 years	10 years	15 years
	CAGR*	CAGR*	CAGR*
Revenue growth	6%	8%	8%
Earnings per share growth	10%	11%	11%
Adjusted earnings per share growth	10%	11%	12%
	£m	£m	£m
Cash from operations	95.5	163.9	207.6
Investment in acquisitions and capital expenditure	50.1	92.6	106.6

* Compound annual growth rate

This longer-term growth record gives the Board confidence in the Group's capabilities and is the basis for capital allocation and planning decisions.

Strategic statement and business model

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

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

Porvair businesses have certain key characteristics in common:

·      specialist design, engineering or commercial 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 or commercial service at an acceptable 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; and

5.   invest in both organic and acquired growth.

Therefore:

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

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

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

·      our geographic presence follows the markets we serve.  In the last twelve months: 49% of revenue was in the Americas; 18% in Asia; 21% in Continental Europe; 11% in the UK; and 1% in Africa.  The Group has plants in the US, UK, Germany, Hungary, the Netherlands and China.  In the last twelve months: 53% of revenue was manufactured in the US; 28% in the UK; 16% in Continental Europe; and 3% in China; and

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

A full ESG report is published with this statement, setting out:

·      Porvair's ESG management framework, goals and TCFD reporting;

·      how climate change and a net zero carbon future might affect markets served by the Group;

·      ESG metrics and results; and

·      how the Group has acted for the benefit of its stakeholders in 2023.

 

Divisional review

Aerospace & Industrial

	2023		2022		Growth
	£m		£m		%
Revenue	67.6		64.7		4
Operating profit	9.3		6.8		37
Adjusted operating profit*	9.8		7.2		36

* See notes 1 and 2 for definitions and reconciliations.

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

Revenue in the year grew by 4%. Aerospace and petrochemical markets were up around 20%, offsetting the de-stocking effects in wider industrial markets. Tightening emissions regulations in the petrochemical market led to strong project demand, notably in India. Passenger air miles returned to pre-pandemic levels. Adjusted operating profits rose 36%. Adjusted operating margins increased to 14.5% (2022: 11.1%), the result of better manufacturing efficiencies from stronger aerospace demand; close management of margins; productivity investments made in prior years; and the partial resolution of contractual obligations from prior years.

One acquisition was made during the year and one in December 2023. Our microelectronic filtration facility in Boise expanded its manufacturing capability with the acquisition of certain business and assets of HRW Inc. Integration has gone well and the larger entity was better able to navigate a difficult year for semi-conductor volumes. This has always been a volatile market and is expected to recover in 2024. We completed the acquisition of the European Filter Corporation ("EFC") in the first trading week of the new financial year. EFC has expertise in the manufacture of mist elimination filters which are used in the production of industrial feedstocks. It also has well established industrial filtration sales channels in north east Europe and we expect to find opportunities for both cross sales and cross manufacture.

 

Laboratory

	2023		2022		Growth
	£m		£m		%
Revenue	60.4		62.7		(4)
Operating profit	8.8		10.0		(12)
Adjusted operating profit*	9.2		10.3		(11)

* See notes 1 and 2 for definitions and reconciliations.

The Laboratory division has two operating businesses: Porvair Sciences (including JG Finneran, Kbiosystems and from July 2023, Ratiolab) and Seal Analytical.

·      Porvair Sciences manufactures laboratory filters, small instruments and associated consumables, for which demand is driven by sample preparation in analytical laboratories.  Differentiation is achieved through proprietary manufacturing capabilities, control of filtration media, and customer service.

·      Seal Analytical supplies instruments and consumables to environmental laboratories, for which demand is driven by water quality regulations.  Differentiation is achieved through consistent new product development focused on improving detection limits, and improving laboratory automation.

As with the wider Group, the Laboratory division experienced some inconsistency in demand in 2023. Reported revenues fell 4% and adjusted operating profits by 11%. Within this, Seal Analytical had another strong year, showing both sales and profit growth; but Porvair Sciences, which mainly manufacturers laboratory consumables, suffered from significant market de-stocking. Across the laboratory supply industry, inventory levels - artificially high through the supply disruptions of 2022 - rebalanced. As a result lead times fell through the year: at JG Finneran, for example, a 14-16 week lead time at the start of 2023 had returned to 2-4 weeks by November 2023 - a more usual level. These changing order patterns affected profits but were offset to a degree by careful cost management. Staff numbers in Porvair Sciences were reduced by 8% through the year. Adjusted operating margins across the division were 15.2% (2022: 16.4%). The Board does not see any change in the fundamental growth drivers in these markets. Indeed Seal Analytical's success in 2023 was buoyed by new products specifically designed to address laboratory consolidation and automation; high sample throughput; and more accurate detection limits.

In July, the Group acquired Ratiolab which makes and sells a range of laboratory consumables. Based in Germany and Hungary, Ratiolab offers complementary products and new routes to market. It also adds European manufacturing and tool making expertise. We expect to find benefits in both cross manufacturing and cross selling. Integration is well underway and we should see the benefits of the acquisition in 2024.

Metal Melt Quality

	2023		2022		Growth
	£m		£m		%
Revenue	48.0		45.2		6
Operating profit	6.5		5.7		14
Adjusted operating profit*	6.5		5.7		14

* See notes 1 and 2 for definitions and reconciliations.

The Metal Melt Quality division manufactures filters for molten aluminium, ductile iron and nickel-cobalt alloys.  It has a well-differentiated product range based on patented products and extensive experience in melt quality assessment.

2023 was a record year with revenue up 6% at an adjusted operating margin of 13.5% (2022: 12.6%). Demand was robust in the first half with all three plants running extra shifts for several months. The Chinese satellite plant had a profitable and cash-generative year. Some de-stocking became apparent in the second half, notably in general industrial filters, and lead times fell. Demand for aerospace related filtration continues to grow and the underlying position of the aluminium market is promising. The division benefited in 2023 from re-shoring of aluminium production back to the US; growing demand for can stock as beverage packaging moves away from plastic; and the increased proportion of aluminium in electric vehicles.

 

Dividends

The Board re-affirms its progressive dividend policy and recommends a final dividend of 4.0 pence per share, at a value of £1.8 million (2022: 3.8 pence per share, at a value of £1.7 million).  The full year dividend increases by 5.3% to 6.0 pence per share, a value of £2.8 million (2022: 5.7 pence per share, a value of £2.6 million).  The Company had £45.5 million (2022: £36.5 million) of distributable reserves at 30 November 2023.

Staff

Of our various stakeholders, in a year of inconsistent trading it is our staff that are the most crucial. 2023 was not straightforward with de-stocking and falling lead times complicating manufacturing operations. The staff across our 22 facilities have coped well and the Board salutes their resourcefulness and perseverance. Porvair believes in devolving management autonomy as far as possible, and our management teams are remunerated in part by how well they execute the employee engagement framework set out by the Board. The Board is very grateful for the hard work, enthusiasm and dedication of all our staff.

Current trading and outlook

After a record 2023 the Board is optimistic for 2024 and beyond. There is much to look forward to as the year unfolds: opportunities afforded by acquisitions; strong order books in aerospace and petrochemical; demand recovery in Laboratory; and new products in Seal Analytical and elsewhere.  In the first half of 2024 these should offset near-term headwinds of adverse foreign exchange and de-stocking in US industrial consumables, which seems to have a few more months to run.

The Group's fundamental demand drivers have not changed. Porvair remains well positioned to take advantage of tightening environmental regulation; the growth of analytical science; the need for clean water; the development of carbon-efficient transportation; the replacement of plastic and steel by aluminium; and the drive for manufacturing process quality and efficiency. It is these trends that drive the Group's consistent longer-term trading record and enables the Board to look ahead with confidence.

Ben Stocks

Group Chief Executive

2 February 2024

 

 

Financial review

 

Group results

	2023		2022		Growth
	£m		£m		%
Revenue	176.0		172.6		2
Operating profit	21.2		19.8		7
Profit before tax	20.1		18.7		7
Profit after tax	16.0		14.7		9

 

Revenue was 2% higher on a reported currency basis and 1% higher at constant currency (see note 1). Operating profit was £21.2 million (2022: £19.8 million) and profit before tax was £20.1 million (2022: £18.7 million). Profit after tax was £16.0 million (2022: £14.7 million).  An operating review, together with a review of divisional performance, is included in the Chief Executive's report above.

Alternative performance measures - profit

	2023		2022		Growth
	£m		£m		%
Adjusted operating profit	22.6		20.5		10
Adjusted profit before tax	21.4		19.4		10
Adjusted profit after tax	17.1		15.3		12

 

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 adjusting item provides a more consistent assessment of the Group's trading performance. Adjusting items of £1.3 million (2022: £0.7 million) comprise £0.9 million (2022: £0.7 million) for the amortisation of acquired intangible assets and £0.4 million (2022: £nil) for costs incurred in relation to the acquisition of certain business and assets from HRW Inc.; the 100% share capital of Ratiolab, which completed in July 2023; and the 100% share capital of EFC, which completed in December 2023.  Details of these adjusting items are included within note 1.

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 rates used for translating the results of overseas operations were:

	2023		2022
Average rate for translating the results:
US $ denominated operations	$1.24:£		$1.25:£
Euro denominated operations	€1.15:£		€1.18:£
Closing rate for translating the balance sheet:
US $ denominated operations	$1.27:£		$1.19:£
Euro denominated operations	€1.16:£		€1.16:£

 

During the year, the Group sold US$28.5 million (2022: US$25.0 million) at a net rate of US$1.21:£1 (2022: US$1.29:£1) and purchased €4.6 million (2022: sold €2.6 million) at a net rate of €1.15:£1 (2022: €1.19:£1). At 30 November 2023, the Group had US$10.0 million (2022: US$13.0 million) and €nil (2022: €0.4 million) of outstanding forward foreign exchange contracts; hedge accounting has not been applied to these contracts.

Finance costs

Net finance costs comprise interest on borrowings; lease liabilities; the Group's retirement benefit obligations; together with the cost of unwinding discounts on provisions and other payables. The Group also incurred undrawn commitment fees on the Group's banking facilities, though these fees were more than offset by interest income from deposits.  Net finance costs in the year remained relatively flat at £1.2 million (2022: £1.1 million). Interest cover from operating profit was 18 times (2022: 18 times). Interest cover from operating profit for bank finance costs only was 65 times (2022: 57 times).

 

Tax

The total Group tax charge for the year was £4.1 million (2022: £4.0 million), including the tax effect of the adjusting items set out in note 1. The adjusted tax charge was £4.3 million (2022: £4.2 million), with the effective rate of income tax on adjusted profit before tax at 20% (2022: 21%). The enacted increase in UK Corporation Tax from 19% to 25% effective April 2023 resulted in a blended rate of 23% being initially applied on UK profits within this financial year.

The Group has current tax provisions of £0.6 million (2022: £0.3 million), which includes £1.1 million (2022: £1.1 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 £0.4 million (2022: £1.0 million) and a deferred tax liability of £3.6 million (2022: £2.8 million). The deferred tax asset relates principally to the retirement benefit obligations and share-based payments. The deferred tax liability relates to accelerated capital allowances, acquired intangible assets arising on consolidation and other timing differences.

Total equity and distributable reserves

Total equity at 30 November 2023 was £140.4 million (2022: £131.1 million), an increase of 7% over the prior year.  The net increase in total equity includes profit after tax of £16.0 million (2022: £14.7 million), a net of tax actuarial gain of £0.2 million (2022: £1.3 million), together with a £4.6 million exchange loss (2022: £7.8 million gain) on the retranslation of foreign subsidiaries.

The Company had £45.5 million (2022: £36.5 million) of distributable reserves at 30 November 2023. The Company's distributable reserves increased in the year from dividends received from Group companies, and decreased in the year from head office costs and dividends paid to shareholders.

Cash flow, cash and net debt

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

	2023		2022
	£m		£m
Operating cash flow before working capital	29.1		26.9
Working capital movement	(2.8)		(2.7)
Post-employment benefits (net cash movement)	(2.2)		(1.4)
Cash generated from operations	24.1		22.8
Interest	(0.3)		(0.4)
Tax	(3.0)		(4.1)
Capital expenditure	(4.8)		(4.9)
	16.0		13.4
Acquisitions	(13.9)		(1.0)
Share issue proceeds	0.1		0.5
Purchase of Employee Benefit Trust shares	(0.7)		(0.7)
Increase in borrowings	9.8		-
Decrease in borrowings	(9.8)		(5.0)
Dividends	(2.7)		(2.5)
Repayment of lease liabilities	(2.6)		(2.5)
(Decrease)/increase in cash	(3.8)		2.2
Net cash/(debt) reconciliation	2023		2022
	£m		£m
Net cash/(debt) at 1 December	6.8		(2.0)
(Decrease)/increase in cash	(3.8)		2.2
Net movement in borrowings	-		5.0
(Increase)/decrease in lease liabilities	(2.1)		1.2
Exchange	(0.2)		0.4
Net cash at 30 November	0.7		6.8
Net cash	14.1		18.3
Lease liabilities	(13.4)		(11.5)
Net cash at 30 November	0.7		6.8

 

Generating free cash flow is central to the Group's business model.  Cash generated from operations was £24.1 million (2022: £22.8 million), with net working capital increasing by £2.8 million (2022: £2.7 million).  The Group started the year with net cash (excluding lease liabilities) of £18.3 million and finished the year with £14.1 million, having invested £18.7 million in capital expenditure and acquisitions (2022: £5.9 million). 

Bank borrowings at 30 November 2023 were £nil (2022: £nil).  As at 30 November 2023, the Group had €27.8 million/£24.0 million (2022: €27.7 million/£23.9 million) of unused credit facilities and an unutilised £2.5 million (2022: £2.5 million) net overdraft facility.  

Capital expenditure

Capital expenditure on property, plant and equipment was £4.8 million (2022: £4.9 million), as the Group continued with investment in capital projects with a particular emphasis on automation, productivity and capacity.

Acquisitions

On 3 March 2023, the Group acquired certain business and assets from HRW Inc.  Total consideration was £0.9 million, of which £0.2 million is deferred. 

On 14 July 2023, the Group completed its acquisition of 100% of the share capital of Ratiolab GmbH and Ratiolab Kft. ("Ratiolab") on a cash free, debt free basis and subject to an agreed level of working capital.  Consideration was £8.1 million with acquired net debt of £4.0 million being settled on or shortly after acquisition.

Further details of the acquisitions made in the year are disclosed in note 8.

On 25 February 2021, the Group acquired 100% of the share capital of Kbiosystems. Contingent consideration paid in the year ended 30 November 2023 was £1.1 million (2022: £1.0 million).  No further contingent consideration is payable for Kbiosystems.

Events after the reporting date

Following the year-end, on 4 December 2023 the Group acquired 100% of the share capital of European Filter Corporation NV ("EFC") on a cash free, debt free basis and subject to an agreed level of working capital.  Initial consideration was £10.3 million.  Further details are disclosed in note 9.

Provisions and contingent liabilities

The Group has £3.6 million (2022: £4.0 million) of provisions for dilapidations and performance warranties. £1.5 million of warranty provisions have been created for sales made in the year, whilst £1.6 million of warranty provisions have been released in the year following the latest estimate of the expected costs to be incurred.

The Group has US$nil (2022: US$1.0 million) and €3.0 million (2022: €1.0 million) of unexpired advanced payment and performance bonds issued in the ordinary course of business. The advanced payment bonds are expected to expire no later than October 2024 and the performance bonds no later than July 2027.

Retirement benefit obligations

Retirement benefit obligations measured in accordance with IAS 19 Employee Benefits were £7.7 million (2022: £9.8 million). The Group supports its defined benefit pension scheme in the UK ("the Plan"), which is closed to new entrants, and provides access to defined contribution schemes for its other employees. The Plan's liabilities decreased in the year to £30.8 million (2022: £34.1 million). The Plan's assets also decreased in the year to £23.3 million (2022: £24.5 million). Following a change in financial assumptions, including an increase in the discount rate, a net of tax actuarial gain of £0.2 million (2022: gain of £1.3 million) was recognised within the statement of comprehensive income.  Cash contributions paid to the Plan were £2.6 million (2022: £2.1 million), which included a deficit recovery payment of £2.1 million (2022: £1.6 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.

 

James Mills

Group Finance Director

2 February 2024

Consolidated income statement

For the year ended 30 November

			2023		2022
Continuing operations		Note	£'000		£'000
Revenue		1,2	176,013		172,575
Cost of sales			(113,719)		(113,597)
Gross profit			62,294		58,978
Distribution costs			(2,569)		(2,759)
Administrative expenses			(38,485)		(36,409)
Adjusted operating profit		1,2	22,571		20,498
Adjustments:
Amortisation of acquired intangible assets			(872)		(688)
Other acquisition-related costs			(459)		-
Operating profit		1,2	21,240		19,810
Finance income			126		-
Finance costs			(1,276)		(1,072)
Profit before tax		1,2	20,090		18,738
Adjusted income tax expense			(4,324)		(4,169)
Adjustments:
Tax effect of adjustments to operating profit		1	204		145
Income tax expense			(4,120)		(4,024)
Profit for the year		1,2	15,970		14,714
Earnings per share (basic)		3	34.8p		32.1p
Earnings per share (diluted)		3	34.8p		32.0p
Adjusted earnings per share (basic)		3	37.2p		33.2p
Adjusted earnings per share (diluted)		3	37.2p		33.2p

 

 

Consolidated statement of comprehensive income

For the year ended 30 November

		2023 £'000		2022 £'000
Profit for the year		15,970		14,714
Other comprehensive (loss)/income
Items that will not be reclassified to profit and loss:
Actuarial gain in defined benefit pension plans net of tax		227		1,257
Items that may be subsequently reclassified to profit and loss:
Exchange (loss)/gain on translation of foreign subsidiaries		(4,628)		7,796
Total other comprehensive (loss)/income for the year		(4,401)		9,053
Total comprehensive income for the year		11,569		23,767

 

 

Consolidated balance sheet

As at 30 November

	Note		2023 £'000		2022 £'000
Non-current assets
Property, plant and equipment			28,329		24,311
Right-of-use assets			12,136		10,144
Goodwill and other intangible assets			82,949		77,900
Deferred tax asset			401		1,046
			123,815		113,401
Current assets
Inventories			31,898		30,973
Trade and other receivables			23,268		24,471
Derivative financial instruments			250		554
Cash and cash equivalents			16,839		18,297
			72,255		74,295
Current liabilities
Trade and other payables			(23,827)		(27,881)
Bank overdrafts			(2,787)		-
Current tax liabilities			(594)		(309)
Lease liabilities			(2,057)		(2,156)
Derivative financial instruments			-		(319)
Provisions	5		(3,243)		(3,692)
			(32,508)		(34,357)
Net current assets			39,747		39,938
Non-current liabilities
Deferred tax liability			(3,583)		(2,811)
Retirement benefit obligations			(7,713)		(9,816)
Other payables			(123)		-
Lease liabilities			(11,342)		(9,316)
Provisions	5		(363)		(328)
			(23,124)		(22,271)
Net assets			140,438		131,068
Capital and reserves
Share capital			927		927
Share premium account			37,778		37,626
Cumulative translation reserve			10,825		15,453
Retained earnings			90,908		77,062
Equity attributable to owners of the parent			140,438		131,068

 

Consolidated cash flow statement

For the year ended 30 November

	Note		2023 £'000		2022 £'000
Cash flows from operating activities
Cash generated from operations	7		24,079		22,798
Interest paid			(452)		(403)
Tax paid			(3,027)		(4,118)
Net cash generated from operating activities			20,600		18,277
Cash flows from investing activities
Interest received			122		-
Acquisition of subsidiaries			(9,957)		(1,000)
Settlement of debt acquired on acquisition			(3,955)		-
Purchase of property, plant and equipment			(4,702)		(4,826)
Purchase of intangible assets			(107)		(61)
Proceeds from sale of property, plant and equipment			-		17
Net cash used in investing activities			(18,599)		(5,870)
Cash flows from financing activities
Proceeds from issue of ordinary shares			152		551
Purchase of Employee Benefit Trust shares			(745)		(749)
Proceeds of loans and borrowings			9,818		-
Repayments of loans and borrowings			(9,818)		(4,986)
Dividends paid to shareholders	4		(2,664)		(2,478)
Repayments of lease liabilities			(2,551)		(2,503)
Net cash used in financing activities			(5,808)		(10,165)
Net (decrease)/increase in cash and cash equivalents			(3,807)		2,242
Effects of exchange rate changes			(438)		613
			(4,245)		2,855
Cash and cash equivalents at 1 December			18,297		15,442
Cash and cash equivalents at 30 November			14,052		18,297

 

 

Reconciliation of net cash flow to movement in net cash/(debt)

		2023 £'000		2022 £'000
Net cash/(debt) at 1 December		6,825		(2,006)
(Decrease)/increase in cash and cash equivalents		(3,807)		2,242
Net movement in borrowings		-		4,986
Net debt acquired in the year		(3,955)		-
Settlement of debt acquired on acquisition		3,955		-
(Increase)/decrease in lease liabilities		(2,168)		1,194
Effects of exchange rate changes		(197)		409
Net cash at 30 November		653		6,825

 

Net cash and bank debt		14,052		18,297
Lease liabilities		(13,399)		(11,472)
Net cash at 30 November		653		6,825

 

Consolidated statement of changes in equity

For the year ended 30 November

	Share capital £'000	Share premium account £'000	Cumulative translation   reserve £'000	Retained earnings £'000	Total equity £'000
At 1 December 2021	924	37,078	7,657	63,287	108,946
Profit for the year	-	-	-	14,714	14,714
Other comprehensive income	-	-	7,796	1,257	9,053
Total comprehensive income for the year	-	-	7,796	15,971	23,767
Purchase of own shares (held in trust)	-	-	-	(749)	(749)
Issue of ordinary share capital	3	548	-	-	551
Share-based payments (net of tax)	-	-	-	1,031	1,031
Dividends paid	-	-	-	(2,478)	(2,478)
At 30 November 2022	927	37,626	15,453	77,062	131,068
Profit for the year	-	-	-	15,970	15,970
Other comprehensive loss	-	-	(4,628)	227	(4,401)
Total comprehensive income for the year	-	-	(4,628)	16,197	11,569
Purchase of own shares (held in trust)	-	-	-	(745)	(745)
Issue of ordinary share capital	-	152	-	-	152
Share-based payments (net of tax)	-	-	-	1,058	1,058
Dividends paid	-	-	-	(2,664)	(2,664)
At 30 November 2023	927	37,778	10,825	90,908	140,438

Notes

 

1.         Alternative performance measures

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

Alternative revenue measures

		2023		2022		Growth
Aerospace & Industrial		£'000		£'000		%
Revenue at constant currency		64,418		61,864		4
Exchange		3,218		2,861
Revenue as reported		67,636		64,725		4
Laboratory
Underlying revenue		53,574		59,376		(10)
Acquisition		2,799		-
Revenue at constant currency		56,373		59,376		(5)
Exchange		4,013		3,308
Revenue as reported		60,386		62,684		(4)
Metal Melt Quality
Revenue at constant currency		42,329		40,236		5
Exchange		5,662		4,930
Revenue as reported		47,991		45,166		6
Group
Underlying revenue		160,321		161,476		(1)
Acquisition		2,799		-
Revenue at constant currency		163,120		161,476		1
Exchange		12,893		11,099
Revenue as reported		176,013		172,575		2

 

Revenue at constant currency is derived from translating overseas subsidiaries results at budgeted fixed exchange rates.  In 2023 and 2022, the rates used were US$1.40:£1 and €1.20:£1, compared with reported rates of US$1.24:£1 (2022: US$1.25:£1) and €1.15:£1 (2022: €1.18:£1).

 

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

 

The acquisition line relates to the revenue in relation to the acquisition of Ratiolab, which was acquired in July 2023.

 

 

Alternative profit measures

 

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

 

			2023				2022
		Adjusted	Adjustments	Reported		Adjusted	Adjustments	Reported
		£'000	£'000	£'000		£'000	£'000	£'000
Operating profit		22,571	(1,331)	21,240		20,498	(688)	19,810
Finance income		126	-	126		-	-	-
Finance costs		(1,276)	-	(1,276)		(1,072)	-	(1,072)
Profit before tax		21,421	(1,331)	20,090		19,426	(688)	18,738
Income tax expense		(4,324)	204	(4,120)		(4,169)	145	(4,024)
Profit for the year		17,097	(1,127)	15,970		15,257	(543)	14,714

 

An analysis of adjusting items is given below:

	2023		2022
Affecting operating profit:	£'000		£'000
Amortisation of acquired intangible assets	(872)		(688)
Other acquisition-related costs	(459)		-
	(1,331)		(688)
Affecting tax:
Tax effect of adjustments to operating profit	204		145
Total adjusting items	(1,127)		(543)

 

Adjusted operating profit excludes:

 

·      the amortisation of intangible assets arising on acquisition of businesses of £0.9 million (2022: £0.7 million); and

·      other acquisition-related costs of £0.4 million (2022: £nil) incurred in relation to the acquisition of certain business and assets from HRW; the 100% share capital of Ratiolab; and the 100% share capital of EFC, which completed post year-end on 4 December 2023 (see notes 8 and 9). 

Return on capital employed

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

·      return on capital employed of 15% (2022: 15%) 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 (excluding lease liabilities); and

·      return on operating capital employed of 34% (2022: 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 net of tax retirement benefit obligations to give a measure of the operating capital.

 

2.         Segment information

 

The chief operating decision maker has been identified as the Board of Directors. The Board of Directors has instructed the Group's internal reporting to be based around differences in products and services, in order to assess performance and allocate resources.  The key profit measure used to assess the performance of each reportable segment is adjusted operating profit/(loss).  Management has determined the operating segments based on this reporting.

As at 30 November 2023, the Group is organised on a worldwide basis into three operating segments:

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

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

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

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

The segment results for the year ended 30 November 2023 are as follows:

2023	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	67,661		62,106		47,991		-		177,758
Inter-segment revenue	(25)		(1,720)		-		-		(1,745)
Revenue	67,636		60,386		47,991		-		176,013
Adjusted operating profit/(loss)	9,780		9,215		6,547		(2,971)		22,571
Amortisation of acquired intangible assets	(446)		(426)		-		-		(872)
Other acquisition-related costs	(23)		-		-		(436)		(459)
Operating profit/(loss)	9,311		8,789		6,547		(3,407)		21,240
Finance income	-		-		-		126		126
Finance costs	-		-		-		(1,276)		(1,276)
Profit/(loss) before tax	9,311		8,789		6,547		(4,557)		20,090

The segment results for the year ended 30 November 2022 are as follows:

2022	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Total segment revenue	64,864		64,453		45,166		-		174,483
Inter-segment revenue	(139)		(1,769)		-		-		(1,908)
Revenue	64,725		62,684		45,166		-		172,575
Adjusted operating profit/(loss)	7,200		10,321		5,701		(2,724)		20,498
Amortisation of acquired intangible assets	(382)		(306)		-		-		(688)
Operating profit/(loss)	6,818		10,015		5,701		(2,724)		19,810
Finance costs	-		-		-		(1,072)		(1,072)
Profit/(loss) before tax	6,818		10,015		5,701		(3,796)		18,738

 

 

The segment assets and liabilities at 30 November 2023 are as follows: 

 

2023	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	67,456		74,835		34,470		2,470		179,231
Cash and cash equivalents	-		-		-		16,839		16,839
Total assets	67,456		74,835		34,470		19,309		196,070
Segmental liabilities	(18,709)		(13,533)		(6,301)		(6,589)		(45,132)
Retirement benefit obligations	-		-		-		(7,713)		(7,713)
Bank overdrafts	-		-		-		(2,787)		(2,787)
Total liabilities	(18,709)		(13,533)		(6,301)		(17,089)		(55,632)

The segment assets and liabilities at 30 November 2022 are as follows: 

 

2022	Aerospace & Industrial		Laboratory		Metal Melt Quality		Central		Group
	£'000		£'000		£'000		£'000		£'000
Segmental assets	68,033		63,324		36,063		1,979		169,399
Cash and cash equivalents	-		-		-		18,297		18,297
Total assets	68,033		63,324		36,063		20,276		187,696
Segmental liabilities	(21,640)		(13,168)		(6,893)		(5,111)		(46,812)
Retirement benefit obligations	-		-		-		(9,816)		(9,816)
Total liabilities	(21,640)		(13,168)		(6,893)		(14,927)		(56,628)

Geographical analysis

 

	2023				2022
Revenue	By destination £'000		By origin £'000		By destination £'000		By origin £'000
United Kingdom	18,588		48,291		17,715		50,018
Continental Europe	36,707		28,863		35,898		21,695
United States of America	80,479		93,609		80,537		96,370
Other NAFTA	4,298		-		3,592		-
South America	2,567		-		2,409		-
Asia	31,925		5,250		30,785		4,492
Africa	1,449		-		1,639		-
	176,013		176,013		172,575		172,575

 

 

3.         Earnings per share (EPS)

	2023				2022
As reported	Earnings     £'000	Weighted average number of shares	Per share     Pence		Earnings     £'000	Weighted average number of shares	Per share     Pence
Profit for the year - attributable to owners of the parent	15,970				14,714
Shares in issue		46,351,723				46,211,979
Shares owned by the Employee Benefit Trust		(439,447)				(319,288)
Basic EPS	15,970	45,912,276	34.8		14,714	45,892,691	32.1
Dilutive share options outstanding	-	26,112	-		-	18,598	(0.1)
Diluted EPS	15,970	45,938,388	34.8		14,714	45,911,289	32.0

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

 

	2023				2022
Adjusted	Earnings     £'000	Weighted average number of shares	Per share     Pence		Earnings     £'000	Weighted average number of shares		Per share     Pence
Profit for the year - attributable to owners of the parent	15,970				14,714
Adjusting items (note 1)	1,127				543
Adjusted profit -attributable to owners of the parent	17,097				15,257
Adjusted Basic EPS	17,097	45,912,276	37.2		15,257	45,892,691		33.2
Adjusted Diluted EPS	17,097	45,938,388	37.2		15,257	45,911,289		33.2

4.         Dividends per share

 

	2023			2022
	Per share			Per share
	Pence	£'000		Pence	£'000
Final dividend paid - in respect of prior year	3.8	1,745		3.5	1,606
Interim dividend paid - in respect of current year	2.0	919		1.9	872
	5.8	2,664		5.4	2,478

The Directors recommend the payment of a final dividend of 4.0 pence per share (2022: 3.8 pence per share) to be paid on 5 June 2024 to shareholders on the register on 3 May 2024; the ex-dividend date is 2 May 2024.  This makes a total dividend for the year of 6.0 pence per share (2022: 5.7 pence per share).

 

5.         Provisions

				Dilapidations		Warranty		Total
				£'000		£'000		£'000
At 1 December 2022				328		3,692		4,020
Additional charge in the year				-		1,486		1,486
Utilisation of provision				-		(294)		(294)
Release of provision				-		(1,622)		(1,622)
Unwinding of discount				35		-		35
Exchange				-		(19)		(19)
At 30 November 2023				363		3,243		3,606

Provisions arise from potential claims on major contracts, sale warranties, and discounted dilapidations for leased property.  Matters that could affect the timing, quantum and extent to which provisions are utilised or released include the impact of any remedial work, claims against outstanding performance bonds, and the demonstrated life of the filtration equipment installed. The outflow of economic benefits in relation to warranty provisions is expected to be within one year, whilst the outflow on dilapidations is expected to be greater than one year. 

 

	2023		2022
Analysis of total provisions	£'000		£'000
Current	3,243		3,692
Non-current	363		328
Net book value at 30 November	3,606		4,020

6.         Contingent liabilities

At 30 November 2023, the Group had the following advanced payment and performance bonds issued to customers in the ordinary course of business:

			US 000		€'000
Advanced payment bonds			-		2,514
Performance bonds			-		499
At 30 November 2023			-		3,013

 

			US ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000		€'000
Advanced payment bonds			-		657
Performance bonds			956		353
At 30 November 2022			956		1,010

The advanced payment and performance bonds are expected to expire no later than October 2024 and July 2027 respectively.

 

7.         Cash generated from operations

			2023 £'000		2022 £'000
Operating profit			21,240		19,810
Adjustments for:
Fair value movement of derivatives through profit and loss			(15)		(255)
Share-based payments			1,048		1,057
Depreciation of property, plant and equipment and amortisation of intangibles			4,583		3,845
Depreciation of right-of-use assets			2,232		2,212
Impairment of property, plant and equipment			38		186
(Gain)/loss on disposal of assets			(2)		14
Operating cash flows before movement in working capital			29,124		26,869
Increase in inventories			(430)		(4,919)
Decrease/(increase) in trade and other receivables			973		(2,044)
(Decrease)/increase in trade and other payables			(3,019)		5,032
Decrease in provisions			(392)		(783)
Increase in working capital			(2,868)		(2,714)
Post-employment benefits (net cash movement)			(2,177)		(1,357)
Cash generated from operations			24,079		22,798

8.         Acquisitions

(a) HRW Inc. business and assets

On 3 March 2023, the Group acquired certain business and assets from HRW Inc., a small engineering operation based in Nampa, Idaho, and key supplier to the Group's microelectronics filtration facility in Idaho.  The acquisition expands machining and product design skills to that location.

The total maximum consideration is £0.9 million, consisting of initial and deferred consideration.  In the period since acquisition, the business contributed £0.1 million of adjusted operating profit to the Group results.  Had the acquisition been consolidated from 1 December 2022, the income statement would show adjusted operating profit of £22.7 million.

The following table sets out the purchase consideration, together with the fair value of assets acquired and liabilities assumed:

			Total
			£'000
Initial cash consideration			668
Deferred cash consideration			200
Total purchase consideration			868
Fair value of net assets acquired (below)			(679)
Goodwill			189

   

			Fair value
Fair value of identifiable assets acquired and liabilities assumed:			£'000
Technology and know-how (included within intangible assets)			343
Property, plant and equipment (including right-of-use assets)			538
Inventory			37
Trade and other payables (including lease liabilities)			(239)
Fair value of net assets acquired			679

A valuation of the identifiable intangible assets has been carried out in the period.  Acquired intangible assets comprise technology and know-how of £0.3 million.

 

The goodwill is attributable to non-contractual relationships, the synergies between the business acquired and the operations of the Group, and the potential to develop the technologies acquired.  None of these meet the criteria for recognition of intangible assets separable from goodwill.  The goodwill recognised is attributable to the Aerospace & Industrial division and is expected to be deductible for income tax purposes. 

(b) Ratiolab share capital

On 4 May 2023, the Group announced that it would acquire, subject to Hungarian regulatory approval, 100% of the issued share capital of two businesses, Ratiolab GmbH and Ratiolab Kft. (together "Ratiolab").  Following receipt of Hungarian regulatory approval, the Group completed the acquisition on 14 July 2023. 

 

Ratiolab GmbH, located outside Frankfurt, sells a wide range of laboratory consumables in Europe and the Middle East.  Ratiolab Kft., located close to Budapest, manufactures laboratory consumables in an 8,000m² facility, the freehold of which was included with the acquisition. Ratiolab joins the Group's Laboratory division, offering a complementary product range and adding European manufacturing capabilities, injection moulding expertise, and routes to market.   

The acquisition completed on a cash free, debt free basis and subject to an agreed level of working capital.  Total cash consideration of £8.1 million was paid in the year with acquired net debt of £4.0 million being settled on or shortly after acquisition.

In the period since acquisition, Ratiolab contributed £2.8 million of revenue and £0.2 million of adjusted operating profit to the Group results.  Had the acquisition been consolidated from 1 December 2022, the income statement would show revenue of £181.7 million and adjusted operating profit of £22.8 million.

The following table sets out the consideration paid, together with the provisional fair value of assets acquired and liabilities assumed:

			Total
			£'000
Cash consideration			8,108
Provisional fair value of net assets acquired (below)			(2,872)
Goodwill			5,236

 

 

			Fair value
Provisional fair value of identifiable assets acquired and liabilities assumed:			£'000
Property, plant and equipment (including right-of-use assets)			5,123
Trademark, customer order book and relationships (included within intangible assets)			2,897
Inventory			1,405
Trade and other receivables			650
Net debt			(3,955)
Deferred tax liability			(869)
Lease liabilities			(1,609)
Trade and other payables			(770)
Provisional fair value of net assets acquired			2,872

An independent valuation of the identifiable intangible assets has been carried out in the period.  Acquired intangible assets comprise trademarks of £0.6 million, a customer order book of £0.1 million and customer relationships of £2.2 million.

The goodwill is attributable to non-contractual relationships, the synergies between the business acquired and the operations of the Group; and the potential to develop the technologies acquired.  None of these meet the criteria for recognition of intangible assets separable from goodwill.  The goodwill recognised is attributable to the Laboratory division and is not expected to be deductible for income tax purposes. 

The fair value of trade and other receivables of £0.7 million includes net trade receivables of £0.6 million, all of which is expected to be collectible.

These provisional fair values may be adjusted in future in accordance with IFRS 3 Business Combinations.

9.         Events after the reporting date

Following the year-end, on 4 December 2023, the Group acquired 100% of the share capital of European Filter Corporation NV ("EFC"), a filtration business based in Lummen, Belgium.  EFC has expertise in the manufacture of mist elimination filters used in the production of industrial feedstocks and well established industrial filtration sales channels in north east Europe.  EFC joins the Group's Aerospace & Industrial division, bringing complementary products and engineering as well as strengthening European routes to market.

The acquisition is on a cash free, debt free basis and subject to an agreed level of working capital.  The provisional value of net assets acquired includes property, plant and equipment; inventory; trade and other receivables; and trade and other payables.  The initial cash consideration of £10.3 million was paid after the year-end in December 2023.  In accordance with the sale and purchase agreement, completion accounts are not required until after the date of approval of these financial statements.  Adjustments have not yet been made to the net assets acquired to reflect their fair values, including the recognition of acquired intangible assets separable from goodwill.

The provisional value of initial consideration and provisional fair value of net assets acquired will be determined in future in accordance with IFRS 3 Business Combinations and the sale and purchase agreement.

10.        Basis of preparation

The results for the year ended 30 November 2023 have been prepared in accordance with The Companies Act 2006 and UK-adopted International Accounting Standards. 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 2023, 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 2022, upon which the Auditors reported without qualification, have been delivered to the Registrar of Companies.

11.        Annual general meeting

The Company's Annual General Meeting will be held at 11.00 a.m. on Tuesday 16 April 2024 at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN.

12.        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 Companies Act 2006 and UK-adopted International Accounting Standards, 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 2022. Sarah Vawda joined the Board on 26 June 2023.  A list of current Directors is maintained on the Porvair plc website, www.porvair.com.  Copies of full accounts will be sent to shareholders in March 2024.  Additional copies will be available from www.porvair.com.