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Porvair PLC Half Year Results 2019

24/06/2019 7:00am

UK Regulatory (RNS & others)


PORVAIR (NEX:PRV.GB)
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Porvair PLC

24 June 2019

For immediate release 24 June 2019

Porvair plc

Half yearly results for the six months ended 31 May 2019

Strong results and continued momentum

Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its half yearly results for the six months ended 31 May 2019.

Highlights:

-- Revenue up 21% to GBP72.0 million (2018: GBP59.7 million), 17% on a constant currency basis*.

-- Operating profit up 39% to GBP7.8 million (2018: GBP5.6 million). Adjusted operating profit* up 38% to GBP8.0 million (2018: GBP5.8 million)

   --      Profit before tax up 41% to GBP7.4 million (2018: GBP5.2 million). 
   --      Adjusted basic earnings per share* up 36% to 12.9 pence (2018: 9.5 pence). 
   --      Basic earnings per share were 12.4 pence (2018: 10.7 pence). 

-- Net cash was GBP3.2 million (31 May 2018: GBP2.2 million). GBP2.8 million (2018: 7.0 million) was invested in acquisitions and capital expenditure during the period.

   --      Interim dividend increased 6% to 1.7 pence per share (2018: 1.6 pence). 

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

"Porvair has started 2019 strongly, with demand in aerospace and industrial markets more than offsetting the effects of global trade disturbances seen in some of our smaller product lines. The Group's new product pipeline is promising and investment in more capacity has continued. Order books for the second half are robust and prospects are encouraging."

*See note 1 for definition of alternative performance measures

For further information please contact:

 
 Porvair plc                             020 7466 5000        today 
 Ben Stocks, Chief Executive             01553 765 500   thereafter 
 Chris Tyler, Group Finance Director 
 Buchanan Communications                 020 7466 5000 
 Charles Ryland / Steph Watson 
 

An analyst briefing will take place at 9:30 a.m. on 24 June 2019 at Buchanan. An audio webcast and a copy of the presentation will be available at www.porvair.com on the day.

Operating review

Overview

 
                                 2019    2018   Growth 
                                 GBPm    GBPm        % 
 Revenue                         72.0    59.7       21 
                               ------  ------  ------- 
 Operating profit                 7.8     5.6       39 
                               ------  ------  ------- 
 Adjusted operating profit        8.0     5.8       38 
                               ------  ------  ------- 
 Profit before tax                7.4     5.2       41 
                               ------  ------  ------- 
                                Pence   Pence 
 Adjusted earnings per share     12.9     9.5       36 
                               ------  ------  ------- 
 Earnings per share              12.4    10.7       16 
                               ------  ------  ------- 
 
                                 GBPm    GBPm 
 Net cash                         3.2     2.2 
                               ------  ------ 
 

Revenue growth was 21% (17% at constant currency). Strength in aerospace offset a slower start to the year in markets affected by global tariff or related US/China trade disturbances. Several larger orders in the Aerospace & Industrial division, which commenced shipment in the final quarter of 2018, were delivered in the period.

Profit before tax rose 41%, benefitting from higher volumes through the plants and better operating efficiencies. Adjusted earnings per share increased 36% to 12.9 pence.

Over the last five years the Group has achieved revenue growth of 46% (8% CAGR), earnings per share growth of 92% (14% CAGR) and cash from operations of GBP67 million.

Strategic statement

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

   --      Specialist design or engineering skills are required; 

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

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

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

Business model outline

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

This leads the Group to:

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

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

   3.   Make new product development a core business activity. 
   4.   Establish geographic presence where end-markets require. 
   5.   Invest in both organic and acquired growth. 

Therefore:

-- We focus on three operating segments: Aviation & Industrial; Laboratory; and Metal Melt Quality. All have clear structural growth drivers.

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

-- Through 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: 51% of revenue was in the Americas; 23% in Asia; 13% in continental Europe; 12% 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, 55% of revenue was manufactured in the US, 33% in the UK, 8% in Europe and 4% in China.

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

Aerospace & Industrial

 
                              2019   2018   Growth 
                              GBPm   GBPm        % 
 Revenue                      32.1   21.7       48 
 Operating profit              4.1    2.4       68 
                             -----  -----  ------- 
 Adjusted operating profit     4.2    2.5       68 
                             -----  -----  ------- 
 

This 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; intellectual property; and quality accreditations.

Revenue increased by 48% and margins improved with greater volume. Demand in aerospace and US industrial was strong. Several larger orders which commenced shipment in the final quarter of 2018 were delivered in the period. These included further gasification spares, for which similar orders should repeat periodically but will not be regular. In the US, work for nuclear clean-up and tighter marine emissions standards contributed, as did a full period of the Keystone acquisition. Sales into the microelectronics segment were affected by US/China trade issues, although the profit impact of this was modest.

Laboratory

 
                               2019    2018   Growth 
                               GBPm    GBPm        % 
 Revenue                       21.2    20.3        4 
 Inter segment revenue        (1.1)   (1.3) 
                             ------  ------  ------- 
 External revenue              20.1    19.0        6 
                             ------  ------  ------- 
 
 Operating profit               2.9     2.9        2 
                             ------  ------  ------- 
 Adjusted operating profit      3.0     3.0        2 
                             ------  ------  ------- 
 

This division has two operating businesses: Porvair Sciences 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 active new product development.

After a strong 2018, revenue remained stable for the first half of 2019 with growth in Porvair Sciences offset by a slow start to the year for Seal Analytical. Porvair Sciences grew sales by 10% with demand increasing in most segments supported by new production capacity and patented molecular separations technology acquired in 2018. Seal Analytical sales were down 1% with demand from China affected by tariff changes, and lower production during the switch over to manufacturing the newest platform, the AA500. Tooling is now complete and the new model is in full production. Orders for the second half are healthy.

Metal Melt Quality

 
                     2019   2018   Growth 
                     GBPm   GBPm        % 
 Revenue             19.8   19.0        4 
                    -----  -----  ------- 
 Operating profit     1.6    1.2       29 
                    -----  -----  ------- 
 

This division manufactures filters for molten metal, specialising in aluminium, ductile iron and nickel-cobalt alloys. It has a well differentiated product range based on patented products.

Revenue at constant currency was down 2%. Revenue in the US in automotive and agricultural end markets was affected by global trade issues, however revenue in China grew 33%. Operating profit grew through strong operational efficiencies in the US and losses in China reduced by a third.

Impact of the adoption of IFRS 15

The Group has adopted IFRS 15 for the first time in these results. The Group profit before tax was GBP0.2 million higher in the period and net assets and total equity were GBP0.1 million lower at 1 December 2018 under IFRS 15 than would have been the case under the previous revenue reporting standards. Under the adjustment made at 1 December 2018 to reflect the adoption of IFRS 15, deferred revenue of GBP7.7 million and accrued revenue of GBP0.3 million was eliminated.

As a consequence of the adoption of IFRS 15 provisions for warranties of GBP8.2 million were created and accrued losses of GBP0.7 million were eliminated. Matters that could affect the timing and quantum of the utilisation of the provisions include the impact of any remedial work, claims against the outstanding performance bonds, and the demonstrated life of the filtration equipment installed. Any future residual release to the income statement would be a non-cash item.

Alternative performance measures

 
                                 2019   2018   Growth 
                                 GBPm   GBPm        % 
 Adjusted operating profit        8.0    5.8       38 
                                -----  -----  ------- 
 Adjusted profit before tax       7.6    5.5       40 
                                -----  -----  ------- 
 Adjusted profit for the year     5.9    4.3       36 
                                -----  -----  ------- 
 

Adjusted operating profit and adjusted profit before tax exclude the impact of acquiring businesses:

-- the amortisation of acquired intangible assets was GBP0.3 million (2018: GBP0.2 million); and

-- other adjustments to profit and loss related to acquiring businesses was GBPnil million (2018: GBP0.1 million).

Adjusted profit for the year excludes an exceptional one off tax credit of GBPnil (2018: GBP778,000), reflecting a reduction in the Group's deferred tax liability from the change in US tax rates from December 2017 enacted in the US Tax Cuts and Jobs Act.

More detailed disclosure of the alternative performance measures is given in note 1.

Interest

The Group incurred an interest charge of GBP0.4 million (2018: GBP0.3 million). GBP0.2 million (2018: GBP0.2 million) relates to the finance cost of the defined benefit pension scheme. The remainder comprises undrawn commitment fees and interest on the Group's banking facilities.

Tax

The Group tax charge was GBP1.7 million (2018: GBP0.4 million). The adjusted income tax expense was GBP1.7 million (2018: GBP1.1 million). The underlying rate of income tax for the period has increased to 24% (2018: 22%).

Earnings per share and dividends

The basic earnings per share for the period increased to 12.4 pence (2018: 10.7 pence). Adjusted earnings per share grew by 36% to 12.9 pence (2018: 9.5 pence).

The Board has declared an interim dividend of 1.7 pence (2018: 1.6 pence) per share, an increase of 6%.

Investment

In the last five years, GBP42.4 million has been invested in acquisitions and capacity expansion. The Group invested GBP2.8 million (2018: GBP7.0 million) in acquisitions and capital expenditure in first half of 2019.

Cash flow and net debt

Cash generated from operations in the six months to 31 May 2019 was GBP1.4 million (2018: GBP0.9 million). Working capital increased in the period by GBP7.5 million (2018: GBP5.9 million). Working capital usually increases in the first half. A particularly strong May trading performance this year led to unusually high receivables at the period end. In addition, inventories are higher than the year end reflecting the strength of the order book over the next quarter and increases as a result of Brexit preparations, which have not yet been utilised.

Net cash at 31 May 2019 was GBP3.2 million (31 May 2018: GBP2.2 million; 30 November 2018: GBP6.6 million).

Return on capital employed

The Group's return on capital employed increased to 16% (2018: 14%). Excluding the impact of goodwill, acquired intangible assets and the pension liability the return on operating capital employed was 46% (2018: 44%).

Current trading and outlook

Porvair has started 2019 strongly, with demand in aerospace and industrial markets more than offsetting the effects of global trade disturbances seen in some of our smaller product lines. The Group's new product pipeline is promising and investment in capacity has continued. Order books for the second half are robust and prospects are encouraging.

Ben Stocks

Group Chief Executive

21 June 2019

Related parties

There were no related party transactions in the six months ended 31 May 2019 (2018: none).

Principal risks

Each division considers strategic, operational and financial risks and identifies actions to mitigate those risks. These risk profiles are reviewed by the Board and updated at least annually. The principal risks and uncertainties for the remaining six months of the financial year are discussed below. Further details of the Group's risk profile analysis can be found in the Strategic Report section of the Annual Report for the year ended 30 November 2018.

Although healthy at 31 May 2019, certain elements of the Group's order position can change quickly in the face of changing economic circumstances. The Metal Melt Quality division, Laboratory division and general industrial filtration within the Aerospace & Industrial division all have relatively short lead times and order cycles and, therefore, revenues are subject to fluctuations, which could have a material effect on the Group's results for the balance of 2019.

Forward looking statements

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

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

Condensed consolidated income statement

For the six months ended 31 May

 
                                                  Six months ended 31 
                                                          May 
                                                ---------------------- 
                                                      2019     2018 
                                          Note   Unaudited   Unaudited 
                                                   GBP'000     GBP'000 
 Revenue                                   1,2      72,039      59,685 
 Cost of sales                                    (47,518)    (39,921) 
                                                ----------  ---------- 
 Gross profit                                       24,521      19,764 
 Other operating expenses                         (16,758)    (14,174) 
                                         -----  ----------  ---------- 
 Adjusted operating profit                 1,2       8,018       5,807 
 Adjustments 
 Amortisation of acquired intangibles                (269)       (163) 
 Other acquisition related adjustments                  14        (54) 
---------------------------------------  -----  ----------  ---------- 
 Operating profit                          1,2       7,763       5,590 
 Interest payable and similar charges                (390)       (346) 
 Profit before income tax                            7,373       5,244 
                                         -----  ----------  ---------- 
 Adjusted income tax expense                 1     (1,742)     (1,146) 
 Adjustments 
 Exceptional reduction of US deferred 
  tax liability                                          -         778 
---------------------------------------  -----  ----------  ---------- 
 Income tax expense                          1     (1,742)       (368) 
                                                ----------  ---------- 
 Profit for the period                               5,631       4,876 
 
 Profit attributable to: 
  Owners of the parent                               5,634       4,877 
  Non-controlling interests                            (3)         (1) 
 Profit for the period                               5,631       4,876 
                                                ----------  ---------- 
 
 Earnings per share (basic)                  3       12.4p       10.7p 
 Adjusted earnings per share (basic)         3       12.9p        9.5p 
 Earnings per share (diluted)                3       12.3p       10.7p 
 Adjusted earnings per share (diluted)       3       12.8p        9.4p 
 

Condensed consolidated statement of comprehensive income

For the six months ended 31 May

 
                                                          Six months ended 31 
                                                                  May 
                                                       ------------------------ 
                                                              2019         2018 
                                                         Unaudited    Unaudited 
                                                           GBP'000      GBP'000 
 Profit for the period                                       5,631        4,876 
                                                       -----------  ----------- 
 Other comprehensive income: 
 Items that will not be reclassified to profit 
  and loss 
 Actuarial (losses)/gains in defined benefit pension 
  plans net of tax                                         (2,372)          490 
                                                       -----------  ----------- 
 Items that may be subsequently reclassified to 
  profit or loss 
 Exchange differences on translation of foreign 
  subsidiaries                                                 757          994 
                                                               757          994 
 Net other comprehensive income                            (1,615)        1,484 
                                                       -----------  ----------- 
 Total comprehensive income for the period                   4,016        6,360 
                                                       -----------  ----------- 
 
 Comprehensive income attributable to: 
  Owners of the parent                                       4,019        6,361 
  Non-controlling interests                                    (3)          (1) 
                                                       -----------  ----------- 
 Total comprehensive income for the period                   4,016        6,360 
                                                       -----------  ----------- 
 

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

Condensed consolidated balance sheet

As at 31 May

 
                                                                      As at 30 
                                                       As at 31 May    November 
                                           ------------------------  ---------- 
                                     Note         2019         2018        2018 
                                             Unaudited    Unaudited     Audited 
                                               GBP'000      GBP'000     GBP'000 
 Non-current assets 
 Property, plant and equipment          5       22,375       20,453      21,827 
 Goodwill and other intangible 
  assets                                5       67,499       64,856      67,001 
 Deferred tax asset                              2,647        2,725       2,304 
                                                92,521       88,034      91,132 
 Current assets 
 Inventories                                    22,810       18,626      19,856 
 Trade and other receivables                    26,407       22,881      22,336 
 Cash and cash equivalents                       8,194        8,461      11,492 
                                           -----------  -----------  ---------- 
                                                57,411       49,968      53,684 
 
 Current liabilities 
 Trade and other payables                     (23,739)     (30,574)    (32,826) 
 Current tax liabilities                       (1,356)        (853)     (1,530) 
 Derivative financial instruments                 (43)         (44)           - 
 Provisions for other liabilities 
  and charges                          12     (10,435)        (854)       (506) 
                                              (35,573)     (32,325)    (34,862) 
 
 Net current assets                             21,838       17,643      18,822 
 
 Non-current liabilities 
 Bank loans                                    (4,946)      (6,303)     (4,867) 
 Deferred tax liability                        (2,148)      (1,781)     (2,032) 
 Retirement benefit obligations               (14,409)     (14,298)    (12,356) 
 Other payables                                  (413)      (3,050)     (1,008) 
 Provisions for other liabilities 
  and charges                          12        (231)        (178)       (219) 
                                                                     ---------- 
                                              (22,147)     (25,610)    (20,482) 
                                           -----------  -----------  ---------- 
 Net assets                                     92,212       80,067      89,472 
                                           -----------  -----------  ---------- 
 
 Capital and reserves 
 Share capital                          6          917          914         917 
 Share premium account                  6       35,958       35,932      35,958 
 Cumulative translation reserve         7       11,327        7,958      10,570 
 Retained earnings                      7       44,010       35,244      42,024 
                                           -----------  -----------  ---------- 
 Equity attributable to equity 
  shareholders of the parent                    92,212       80,048      89,469 
 Non-controlling interests                           -           19           3 
                                           -----------  -----------  ---------- 
 Total equity                                   92,212       80,067      89,472 
                                           -----------  -----------  ---------- 
 

The interim financial information on pages 7 to 22 was approved by the Board of Directors on 21 June 2019 and was signed on its behalf by:

Ben Stocks Chris Tyler

Group Chief Executive Group Finance Director

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

Condensed consolidated cash flow statement

For the six months ended 31 May

 
                                                             Six months ended 31 
                                                                     May 
                                                      -------------------------------- 
                                                Note   2019 Unaudited   2018 Unaudited 
                                                              GBP'000          GBP'000 
 Cash flows from operating activities 
 Cash generated from operations                    8            1,430              860 
 Interest paid                                                  (152)            (120) 
 Tax paid                                                     (1,549)          (1,030) 
                                                      ---------------  --------------- 
 Net cash used by operating activities                          (271)            (290) 
                                                      ---------------  --------------- 
 
 Cash flows from investing activities 
 Acquisition of subsidiaries (net of 
  cash acquired)                                  11            (591)          (5,294) 
 Purchase of property, plant and equipment         5          (1,844)          (1,401) 
 Purchase of intangible assets                     5            (330)            (255) 
 Net cash used in investing activities                        (2,765)          (6,950) 
                                                      ---------------  --------------- 
 
 Cash flows from financing activities 
 Net proceeds from the issue of ordinary 
  shares                                           6                -              102 
 Purchase of Employee Benefit Trust 
  shares                                           6            (271)            (207) 
 (Decrease)/increase in borrowings                 9             (31)            3,218 
 Net cash (used in)/generated from financing 
  activities                                                    (302)            3,113 
                                                      ---------------  --------------- 
 
 Net decrease in cash and cash equivalents         9          (3,338)          (4,127) 
 Effects of exchange rate changes                                  40               91 
                                                      ---------------  --------------- 
                                                              (3,298)          (4,036) 
 Cash and cash equivalents at the beginning 
  of the period                                                11,492           12,497 
                                                      ---------------  --------------- 
 Cash and cash equivalents at the end 
  of the period                                                 8,194            8,461 
                                                      ---------------  --------------- 
 

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

Condensed consolidated statement of changes in equity

For the six months ended 31 May (Unaudited)

 
                                                             Share    Cumulative                            Non-controlling 
                                                   Share   premium   translation    Retained                       interest 
                                                 capital   account       reserve    earnings     Total              GBP'000       Total 
                                                 GBP'000   GBP'000       GBP'000     GBP'000    GBP'000                         GBP'000 
                                               ---------  --------  ------------  ----------  ---------  ------------------  ---------- 
 Balance at 1 December 
  2017                                               913    35,831         6,964      31,161         74,869              20      74,889 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Profit for the period                                 -         -             -       4,877          4,877               -       4,877 
 Other comprehensive 
  income/(expense): 
 Exchange differences 
  on translation of foreign 
  subsidiaries                                         -         -           994           -            994               -         994 
 Actuarial gains in 
  defined benefit pension 
  plans net of tax                                     -         -             -         490            490               -         490 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Total comprehensive 
  income for the period                                -         -           994       5,367          6,361               -       6,361 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Transactions with owners: 
 Consideration paid 
  for purchase of own 
  shares (held in trust)                               -         -             -       (207)          (207)               -       (207) 
 Proceeds from shares 
  issued                                               1       101             -           -            102               -         102 
 Employee share option 
  schemes: 
   value of employee services 
    net of tax                                         -         -             -         152            152               -         152 
 Dividends approved 
  as final or paid                                     -         -             -     (1,229)        (1,229)               -     (1,229) 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Total transactions 
  with owners recognised 
  directly in equity                                   1       101             -     (1,284)        (1,182)               -     (1,182) 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Adjustment arising 
  from change in non-controlling 
  interest                                             -         -             -           -              -             (1)         (1) 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Balance at 31 May 2018                              914    35,932         7,958      35,244         80,048              19      80,067 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 
 Balance at 30 November 
  2018                                               917    35,958        10,570      42,024         89,469               3      89,472 
 IFRS 15 adjustment 
  (note 15)                                            -         -             -        (57)           (57)               -        (57) 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Balance at 1 December 
  2018                                               917    35,958        10,570      41,967         89,412               3      89,415 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Profit for the period                                 -         -             -       5,634          5,634               -       5,634 
 Other comprehensive 
  income/(expense): 
 Exchange differences 
  on translation of foreign 
  subsidiaries                                         -         -           757           -            757               -         757 
 Actuarial losses in 
  defined benefit pension 
  plans net of tax                                     -         -             -     (2,372)        (2,372)               -     (2,372) 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Total comprehensive 
  income for the period                                -         -           757       3,262          4,019               -       4,019 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Transactions with owners: 
 Consideration paid 
  for purchase of own 
  shares (held in trust)                               -         -             -       (271)          (271)               -       (271) 
 Employee share option 
  schemes: 
 
   *    value of employee services net of tax          -         -             -         420            420               -         420 
 Dividends approved 
  or paid                                              -         -             -     (1,368)        (1,368)               -     (1,368) 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Total transactions 
  with owners recognised 
  directly in equity                                   -         -             -     (1,219)        (1,219)               -     (1,219) 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Adjustment arising 
  from change in non-controlling 
  interest                                             -         -             -           -              -             (3)         (3) 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 Balance at 31 May 2019                              917    35,958        11,327      44,010         92,212               -      92,212 
                                               ---------  --------  ------------  ----------  -------------  --------------  ---------- 
 
 

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

Notes to the condensed half-yearly consolidated financial information

Notes

   1.             Alternative performance measures 

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

Alternative revenue measures

 
                                     2019      2018   Growth 
 Aerospace & Industrial           GBP'000   GBP'000        % 
 Underlying revenue                29,844    20,872       43 
 Acquisitions                       1,426       638 
                                 --------  --------  ------- 
 Revenue at constant currency      31,270    21,510       45 
 Exchange                             868       190 
                                 --------  -------- 
 Revenue as reported               32,138    21,700       48 
                                 --------  --------  ------- 
 
 Laboratory 
 Underlying revenue                18,213    17,605        3 
 Acquisitions                         804       942 
                                 --------  --------  ------- 
 Revenue at constant currency      19,017    18,547        3 
 Exchange                           1,045       427 
                                 --------  --------  ------- 
 Revenue as reported               20,062    18,974        6 
                                 --------  --------  ------- 
 
 Metal Melt Quality 
 Revenue at constant currency      18,178    18,528      (2) 
 Exchange                           1,661       483 
                                 --------  --------  ------- 
 Revenue as reported               19,839    19,011        4 
                                 --------  --------  ------- 
 
 Group 
 Underlying revenue                66,235    57,005       16 
 Acquisitions                       2,230     1,580 
                                 --------  --------  ------- 
 Revenue at constant currency      68,465    58,585       17 
 Exchange                           3,574     1,110 
                                 --------  --------  ------- 
 Revenue as reported               72,039    59,685       21 
                                 --------  --------  ------- 
 

Revenue at constant currency is derived from translating overseas subsidiaries at budgeted fixed exchange rates. In 2019 and 2018 the rates used were $1.4:GBP and EUR1.2:GBP.

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

   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:

 
                                           2019                                      2018 
                         Adjusted       Adjustments      Total     Adjusted   Adjustments      Total 
                          GBP'000           GBP'000    GBP'000      GBP'000       GBP'000    GBP'000 
 Operating profit               8,018         (255)       7,763       5,807        (217)         5,590 
 Finance costs:                 (390)             -       (390)       (346)            -         (346) 
 Profit before 
  income tax                    7,628         (255)       7,373       5,461        (217)         5,244 
 Income tax expense           (1,742)             -     (1,742)     (1,146)          778         (368) 
                        -------------  ------------  ----------   ---------  -----------  ------------ 
 Profit for the 
  year                          5,886         (255)       5,631       4,315          561         4,876 
                        -------------  ------------  ----------   ---------  -----------  ------------ 
 
 

An analysis of adjusting items is given below:

 
                                                             2019      2018 
 Affecting operating profit                               GBP'000   GBP'000 
 Amortisation of intangible assets acquired through 
  acquisitions                                              (269)     (163) 
 Release of contingent consideration                           14         - 
 Acquisition expenses                                           -      (54) 
                                                            (255)     (217) 
                                                      -----------  -------- 
 
 Affecting tax 
 Tax - exceptional item                                         -       778 
                                                                -       778 
                                                      -----------  -------- 
 Total adjusting items                                      (255)       561 
                                                      -----------  -------- 
 

Adjusted operating profit and adjusted profit before tax exclude:

   --      the impact of acquiring businesses: 

o the amortisation of acquired intangible assets was GBP0.3 million (2018: 0.2 million); and

o acquisition expenses and other adjustments to the income statement related to acquiring businesses was GBPnil (2018: GBP0.1 million).

Adjusted profit for the year excludes the adjustments to profit before tax and an exceptional one off tax credit of GBPnil (2018: GBP0.8 million) reflecting a reduction in the Group's deferred tax liability from the change in US tax rates from December 2017 enacted in the US Tax Cuts and Jobs Act.

   2.             Segmental analyses 

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

As at 31 May 2019, the Group is organised on a worldwide basis into three operating segments:

   1)    Aerospace & Industrial 
   2)    Laboratory 
   3)    Metal Melt Quality 

The segment results for the period ended 31 May 2019 are as follows:

 
 2019                           Aerospace   Laboratory   Metal Melt     Central     Group 
                             & Industrial                   Quality 
                                  GBP'000      GBP'000      GBP'000     GBP'000   GBP'000 
 Total segment 
  revenue                          32,145       21,193       19,841           -    73,179 
 Inter-segment 
  revenue                             (7)      (1,131)          (2)           -   (1,140) 
                           --------------  -----------  -----------  ----------  -------- 
 Revenue                           32,138       20,062       19,839           -    72,039 
                           --------------  -----------  -----------  ----------  -------- 
 
 Adjusted operating 
  profit/(loss)                     4,241        3,047        1,564       (834)     8,018 
 Amortisation of 
  acquired intangibles              (145)        (124)            -           -     (269) 
 Other acquisition 
  related adjustments                   -           14            -           -        14 
-------------------------  --------------  -----------  -----------  ----------  -------- 
 Operating profit/(loss)            4,096        2,937        1,564       (834)     7,763 
 Interest payable 
  and similar charges                   -            -            -       (390)     (390) 
                           --------------  -----------  -----------  ----------  -------- 
 Profit/(loss) 
  before income 
  tax                               4,096        2,937        1,564     (1,224)     7,373 
 Income tax expense                     -            -            -     (1,742)   (1,742) 
 Profit/(loss) 
  for the year                      4,096        2,937        1,564     (2,966)     5,631 
                           --------------  -----------  -----------  ----------  -------- 
 

The segment results for the period ended 31 May 2018 are as follows:

 
 2018                           Aerospace   Laboratory   Metal Melt     Central     Group 
                             & Industrial                   Quality 
                                  GBP'000      GBP'000      GBP'000     GBP'000   GBP'000 
 Total segment 
  revenue                          21,710       20,306       19,011           -    61,027 
 Inter-segment 
  revenue                            (10)      (1,332)            -           -   (1,342) 
                           --------------  -----------  -----------  ----------  -------- 
 Revenue                           21,700       18,974       19,011           -    59,685 
                           --------------  -----------  -----------  ----------  -------- 
 
 Adjusted operating 
  profit/(loss)                     2,529        2,995        1,211       (928)     5,807 
 Amortisation of 
  acquired intangibles               (39)        (124)            -           -     (163) 
 Other acquisition 
  related adjustments                (54)            -            -           -      (54) 
-------------------------  --------------  -----------  -----------  ----------  -------- 
 Operating profit/(loss)            2,436        2,871        1,211       (928)     5,590 
 Interest payable 
  and similar charges                   -            -            -       (346)     (346) 
                           --------------  -----------  -----------  ----------  -------- 
 Profit/(loss) 
  before income 
  tax                               2,436        2,871        1,211     (1,274)     5,244 
 Income tax expense                     -            -            -       (368)     (368) 
 Profit/(loss) 
  for the year                      2,436        2,871        1,211     (1,642)     4,876 
                           --------------  -----------  -----------  ----------  -------- 
 

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

   2.             Segmental analyses continued 

Segment assets and liabilities

 
 At 31 May 2019               Aerospace   Laboratory   Metal Melt      Central        Group 
  - Unaudited              & Industrial                 Quality 
                                GBP'000      GBP'000      GBP'000      GBP'000      GBP'000 
 Segmental assets                65,154       39,247       34,536        2,801      141,738 
 Cash and cash 
  equivalents                         -            -            -        8,194        8,194 
                         --------------  -----------  -----------  -----------  ----------- 
 Total assets                    65,154       39,247       34,536       10,995      149,932 
                         --------------  -----------  -----------  -----------  ----------- 
 
 Segmental liabilities         (18,044)     (10,362)      (4,470)      (5,489)     (38,365) 
 Retirement 
  benefit obligations                 -            -            -     (14,409)     (14,409) 
 Bank overdraft 
  and loans                           -            -            -      (4,946)      (4,946) 
                         --------------  -----------  -----------  -----------  ----------- 
 Total liabilities             (18,044)     (10,362)      (4,470)     (24,844)     (57,720) 
                         --------------  -----------  -----------  -----------  ----------- 
 
 
 At 31 May 2018               Aerospace   Laboratory   Metal Melt      Central        Group 
  - Unaudited              & Industrial                 Quality 
                                GBP'000      GBP'000      GBP'000      GBP'000      GBP'000 
 Segmental assets                55,042       35,675       35,996        2,828      129,541 
 Cash and cash 
  equivalents                         -            -            -        8,461        8,461 
                         --------------  -----------  -----------  -----------  ----------- 
 Total assets                    55,042       35,675       35,996       11,289      138,002 
                         --------------  -----------  -----------  -----------  ----------- 
 
 Segmental liabilities         (16,255)      (9,780)      (4,751)      (6,548)     (37,334) 
 Retirement 
  benefit obligations                 -            -            -     (14,298)     (14,298) 
 Bank overdraft 
  and loans                           -            -            -      (6,303)      (6,303) 
                         --------------  -----------  -----------  -----------  ----------- 
 Total liabilities             (16,255)      (9,780)      (4,751)     (27,149)     (57,935) 
                         --------------  -----------  -----------  -----------  ----------- 
 
 
 At 30 Nov 2018               Aerospace   Laboratory   Metal Melt      Central        Group 
  - Audited                & Industrial                 Quality 
                                GBP'000      GBP'000      GBP'000      GBP'000      GBP'000 
 Segmental assets                59,655       37,608       33,869        2,192      133,324 
 Cash and cash 
  equivalents                         -            -            -       11,492       11,492 
                         --------------  -----------  -----------  -----------  ----------- 
 Total assets                    59,655       37,608       33,869       13,684      144,816 
                         --------------  -----------  -----------  -----------  ----------- 
 
 Segmental liabilities         (18,610)     (11,365)      (3,999)      (4,147)     (38,121) 
 Retirement 
  benefit obligations                 -            -            -     (12,356)     (12,356) 
 Bank overdraft 
  and loans                           -            -            -      (4,867)      (4,867) 
                         --------------  -----------  -----------  -----------  ----------- 
 Total liabilities             (18,610)     (11,365)      (3,999)     (21,370)     (55,344) 
                         --------------  -----------  -----------  -----------  ----------- 
 
   2.             Segmental analyses continued 

Geographical analysis

Revenue

 
                                             Six months ended 31 May 
                            -------------------------------------------------------- 
                                        2019                         2018 
                                      Unaudited                    Unaudited 
                             By destination   By origin   By destination   By origin 
                                    GBP'000     GBP'000          GBP'000     GBP'000 
 United Kingdom                       7,787      25,616            7,550      17,539 
 Continental Europe                   9,558       5,523            9,872       5,536 
 United States of America            30,921      38,388           25,724      34,661 
 Other NAFTA                          3,965           -            4,146           - 
 South America                        1,041           -              929           - 
 Asia                                18,198       2,512           10,628       1,949 
 Africa                                 569           -              836           - 
                            ---------------  ----------  ---------------  ---------- 
                                     72,039      72,039           59,685      59,685 
                            ---------------  ----------  ---------------  ---------- 
 
   3.             Earnings per share 
 
                                                    Six months ended 31 May 
                          -------------------------------------------------------------------------- 
 As reported                              2019                                  2018 
                                        Unaudited                             Unaudited 
                           Earnings     Weighted     Per share   Earnings     Weighted     Per share 
                                         average        amount                 average        amount 
                                          number                                number 
                            GBP'000     of shares        Pence    GBP'000     of shares        Pence 
                          ---------  -------------  ----------  ---------  -------------  ---------- 
 Basic EPS - earnings 
  attributable to 
  ordinary shareholders       5,634                                 4,877 
 Shares in issue                        45,842,280                            45,661,303 
 Shares owned by 
  the Employee Benefit 
  Trust                                  (222,874)                             (135,576) 
 Basic earnings 
  per share                   5,634     45,619,406        12.4      4,877     45,525,727        10.7 
 Effect of dilutive 
  securities - share 
  options                         -        288,827       (0.1)          -        249,215           - 
                          ---------  -------------  ----------  ---------  -------------  ---------- 
 Diluted earnings 
  per share                   5,634     45,908,233        12.3      4,877     45,774,942        10.7 
                          ---------  -------------  ----------  ---------  -------------  ---------- 
 
 
                                             2019                                  2018 
 Adjusted                     Earnings       Weighted   Per share   Earnings       Weighted   Per share 
                                              average      amount                   average      amount 
                                               number                             number of 
                               GBP'000      of shares       Pence    GBP'000         shares       Pence 
 Earnings attributable 
  to ordinary shareholders       5,634                                 4,877 
 Adjusting items 
  (note 1)                         255                                 (561) 
                             ---------  -------------  ----------  ---------  -------------  ---------- 
 Adjusted earnings 
  attributable to 
  ordinary shareholders          5,889                                 4,316 
                             ---------  -------------  ----------  ---------  -------------  ---------- 
 Adjusted basic 
  earnings per share             5,889     45,619,406        12.9      4,316     45,525,727         9.5 
 Adjusted diluted 
  earnings per share             5,889     45,908,233        12.8      4,316     45,774,942         9.4 
                             ---------  -------------  ----------  ---------  -------------  ---------- 
 
   4.             Dividends per share 
 
                                     Six months ended 31 May 
                           ------------------------------------------ 
                                   2019                  2018 
                                 Unaudited             Unaudited 
                            Per share   GBP'000   Per share   GBP'000 
 Final dividend approved         3.0p     1,368        2.7p     1,229 
                           ----------  --------  ----------  -------- 
 

The final dividend approved for the year ended 30 November 2018 was paid to shareholders on 7 June 2019.

The Directors have declared an interim dividend of 1.7 pence (2018: 1.6 pence) per share to be paid on 30 August 2019 to shareholders on the register at the close of business on 26 July 2019. The ex-dividend date for the shares is 25 July 2019.

   5.             Property, plant and equipment and goodwill and other intangible assets 
 
 Six months ended 31 May 2019        Property,       Goodwill      Total 
  - Unaudited                           plant        and other 
                                    and equipment    intangible 
                                                       assets 
                                  ---------------  ------------  -------- 
                                          GBP'000       GBP'000   GBP'000 
 Opening net book amount at 1 
  December 2018                            21,827        67,001    88,828 
 Additions                                  1,844           330     2,174 
 Disposals                                   (52)             -      (52) 
 Depreciation and amortisation            (1,430)         (348)   (1,778) 
 Exchange movements                           186           516       702 
 Closing net book amount at 31 
  May 2019                                 22,375        67,499    89,874 
                                  ---------------  ------------  -------- 
 
 
 Six months ended 31 May 2018        Property,       Goodwill       Total 
  - Unaudited                           plant        and other 
                                    and equipment    intangible 
                                                       assets 
                                  ---------------  ------------  -------- 
                                          GBP'000       GBP'000   GBP'000 
 Opening net book amount at 1 
  December 2017                            19,997        57,227    77,224 
 Additions                                  1,401           255     1,656 
 Acquisitions                                 192         6,894     7,086 
 Depreciation and amortisation            (1,416)         (298)   (1,714) 
 Exchange movements                           279           778     1,057 
 Closing net book amount at 31 
  May 2018                                 20,453        64,856    85,309 
                                  ---------------  ------------  -------- 
 
   6.             Share capital and premium 
 
                                      Number     Ordinary   Share premium 
                                   of shares       shares      account            Total 
                                 (thousands)    Unaudited     Unaudited       Unaudited 
                               -------------  -----------  --------------  ------------ 
                                                  GBP'000         GBP'000       GBP'000 
 At 1 December 2017                   45,641          913          35,831        36,744 
 Employee share options 
  schemes: 
  Exercise of options under 
   share option schemes                   43            1             101           102 
                               -------------  -----------  --------------  ------------ 
 At 31 May 2018                       45,684          914          35,932        36,846 
                               -------------  -----------  --------------  ------------ 
 
 At 1 December 2018                   45,843          917          35,958        36,875 
 At 31 May 2019                       45,843          917          35,958        36,875 
                               -------------  -----------  --------------  ------------ 
 
 

The authorised number of ordinary shares is 75 million (2018: 75 million) shares with a par value of 2.0 pence (2018: 2.0 pence) per share. All issued shares are fully paid. No (2018: 42,600) ordinary shares of 2.0 pence each were issued in the period on the exercise of employee share options for a cash consideration of GBPnil (2018: GBP102,000).

The Group uses an Employee Benefit Trust to purchase shares in the Company to satisfy entitlements under the Group's long term incentive plan. During the period, the Group purchased 54,000 (2018: 42,000) ordinary shares of 2.0 pence for a consideration of GBP271,000 (2018: GBP207,000). As at 31 May 2019 the Employee Benefit Trust held a total of 250,000 ordinary shares of 2.0 pence (2018: 154,000) at a cost of GBP1,239,000 (2018: GBP759,000) and a market value of GBP1,350,000 (2018: GBP801,000).

   7.             Other reserves 
 
                                           Cumulative 
                                          translation      Retained 
                                              reserve      earnings 
                                            Unaudited     Unaudited 
                                        -------------  ------------ 
                                              GBP'000       GBP'000 
 At 1 December 2017                             6,964        31,161 
 Profit for the period attributable 
  to shareholders                                   -         4,877 
 Direct to equity: 
    Final dividend approved                         -       (1,229) 
    Actuarial loss                                  -           590 
    Tax on actuarial loss                           -         (100) 
    Share based payments                            -           322 
    Tax on share based payments                     -         (170) 
    Employee Benefit Trust shares                   -         (207) 
 Exchange differences                             994             - 
 At 31 May 2018                                 7,958        35,244 
                                        -------------  ------------ 
 
 At 30 November 2018                           10,570        42,024 
 Recognised under IFRS 15                           -          (57) 
                                        -------------  ------------ 
 At 1 December 2018                            10,570        41,967 
 Profit for the period attributable 
  to shareholders                                   -         5,634 
 Direct to equity: 
    Final dividend approved                         -       (1,368) 
    Actuarial loss                                  -       (2,858) 
    Tax on actuarial loss                           -           486 
    Share based payments                            -           326 
    Tax on share based payments                     -            94 
    Employee Benefit Trust shares                   -         (271) 
 Exchange differences                             757             - 
 At 31 May 2019                                11,327        44,010 
                                        -------------  ------------ 
 
 
   8.             Cash generated from operations 
 
                                               Six months ended 31 
                                                       May 
                                            ------------------------ 
                                                   2019         2018 
                                              Unaudited    Unaudited 
                                                GBP'000      GBP'000 
 Operating profit                                 7,763        5,590 
 Post-employment benefits                         (983)        (972) 
 Fair value of derivatives through 
  profit and loss                                    43           84 
 Share based payments                               238          322 
 Depreciation and amortisation                    1,778        1,714 
 Loss on disposal of property, plant                 52            - 
  and equipment 
 Operating cash flows before movement 
  in working capital                              8,891        6,738 
                                            -----------  ----------- 
 Increase in inventories                        (2,792)      (1,538) 
 Increase in trade and other receivables        (3,912)      (2,478) 
 Decrease in payables                          (10,640)      (1,499) 
 Increase/(decrease) in provisions                9,883        (363) 
 Increase in working capital                    (7,461)      (5,878) 
                                            -----------  ----------- 
 Cash generated from operations                   1,430          860 
                                            -----------  ----------- 
 
   9.             Reconciliation of net cash flow to movement in net cash 
 
                                                Six months ended 31 
                                                        May 
                                             ------------------------ 
                                                    2019         2018 
                                               Unaudited    Unaudited 
                                                 GBP'000      GBP'000 
 Net decrease in cash and cash equivalents       (3,338)      (4,127) 
 Effects of exchange rate changes                   (70)        (283) 
 Repayment/(increase) in borrowings                   31      (3,218) 
 Net cash at the beginning of the period           6,625        9,786 
                                             -----------  ----------- 
 Net cash at the end of the period                 3,248        2,158 
                                             -----------  ----------- 
 
   10.          Contingent liabilities 

At 31 May 2019, the Group had advanced payment bonds totalling US$2.4 million (30 November 2018: US$2.4 million) relating to monies received in advance on contracts. The advanced payment bonds are released no later than November 2019. The Group has performance bonds totalling US$7.5 million (30 November 2018: US$7.5 million). The bonds are released after a warranty period and in any event no later than April 2022.

   11.          Fair value estimation 

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The condensed half-yearly consolidated financial information does not include all financial risk management information and disclosures required in the annual financial statements; it should be read in conjunction with the Group's annual financial statements as at 30 November 2018. There have been no changes in the risk management processes or in any risk management policies since the year end.

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

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

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

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

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

 
                                        Level      Level     Level     Total 
                                            1          2         3 
                                    ---------   --------  --------  -------- 
                                      GBP'000    GBP'000   GBP'000   GBP'000 
 Financial liabilities at 
  fair value through profit 
  or loss: 
 
        *    Trading derivatives              -      (43)         -      (43) 
 Contingent consideration                     -         -   (3,343)   (3,343) 
 At 31 May 2019                               -      (43)   (3,343)   (3,386) 
                                     ----------  --------  --------  -------- 
 
 Financial liabilities at 
  fair value through profit 
  or loss: 
 Contingent consideration                     -         -   (3,892)   (3,892) 
 At 30 November 2018                          -         -   (3,892)   (3,892) 
                                     ----------  --------  --------  -------- 
 
 

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

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

   11.          Fair value estimation continued 

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

 
                                                                J. G. Finneran    Rohasys 
                                                                   Associates,         BV     Total 
                                                                          Inc. 
                                                               ---------------  ---------  -------- 
                                                                       GBP'000    GBP'000   GBP'000 
 At 1 December 2018                                                    (2,351)    (1,541)   (3,892) 
 Cash paid in the period                                                     -        591       591 
 Recognised in the income 
  statement: 
 
        *    Unearned contingent consideration                               -         14        14 
 
        *    Unwinding discounted contingent consideration                   -       (46)      (46) 
 Foreign exchange movement                                                (29)         19      (10) 
                                                               ---------------  ---------  -------- 
 At 31 May 2019                                                        (2,380)      (963)   (3,343) 
                                                               ---------------  ---------  -------- 
 
 
                                                               J. G. Finneran   Rohasys   Keystone 
                                                                  Associates,        BV     Filter     Total 
                                                                         Inc. 
                                                              ---------------  --------  ---------  -------- 
                                                                      GBP'000   GBP'000    GBP'000   GBP'000 
 At 1 December 2017                                                   (4,432)         -          -   (4,432) 
 Purchase consideration additions 
  in the period                                                             -   (2,746)    (5,219)   (7,965) 
 Cash paid in the period                                                    -     1,454      3,840     5,294 
 Recognised in the income 
  statement: 
 
        *    Unwinding discounted contingent consideration                  -      (46)          -      (46) 
 Foreign exchange movement                                               (77)       (3)       (49)     (129) 
                                                              ---------------  --------  ---------  -------- 
 At 31 May 2018                                                       (4,509)   (1,341)    (1,428)   (7,278) 
                                                              ---------------  --------  ---------  -------- 
 

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

   12.          Provisions for other liabilities and charges 
 
                                           Dilapidations   Warranty     Total 
                                          --------------  ---------  -------- 
                                                 GBP'000    GBP'000   GBP'000 
 At 30 November 2018                                 219        506       725 
 Recognised under IFRS 15                              -      8,187     8,187 
                                          --------------  ---------  -------- 
 At 1 December 2018                                  219      8,693     8,912 
 Charged to/(released from) 
  the consolidated income statement: 
 
        *    Unwinding of discount                    12          -        12 
 
        *    Warranty                                  -      1,786     1,786 
 Utilised: 
 
        *    Warranty                                  -       (44)      (44) 
 At 31 May 2019                                      231     10,435    10,666 
                                          --------------  ---------  -------- 
 
 
                                           Dilapidations   Warranty     Total 
                                          --------------  ---------  -------- 
                                                 GBP'000    GBP'000   GBP'000 
 At 1 December 2017                                  178      1,217     1,395 
 Charged to/(released from) 
  the consolidated income statement: 
 
        *    Warranty                                  -      (363)     (363) 
 At 31 May 2018                                      178        854     1,032 
                                          --------------  ---------  -------- 
 

The provisions arise from a discounted dilapidations provision for leased property, which is expected to be utilised in 2023, and sale warranties.

   12.          Provisions for other liabilities and charges continued 

Warranty provisions arising on the adoption of IFRS 15 reflect the impact of recognising potential future costs arising on construction contracts, which had previously been held as future cost estimates and gave rise to deferred revenue. The warranty provision includes amounts that will be utilised or released as these contracts approach completion. Matters that could affect the timing and quantum of the utilisation of the provisions include the impact of any remedial work, claims against the outstanding performance bonds, and the demonstrated life of the filtration equipment installed. Any future residual release to the income statement would be a non-cash item.

   13.          Exchange rates 

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

 
              Average rate   Average rate   Closing rate   Closing rate 
                 to 31 May      to 31 May      at 31 May      at 30 Nov 
                        19             18             19             18 
                 Unaudited      Unaudited      Unaudited      Unaudited 
 US dollar            1.29           1.38           1.26           1.28 
 Euro                 1.14           1.14           1.13           1.13 
 
   14.          Seasonality 

The results for the six months ended 31 May 2019 are impacted by a lower number of working days in the first six months of the year than in the second half of the year.

   15.          Basis of preparation 

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

This unaudited condensed half-yearly consolidated financial information for the six months ended 31 May 2019 has been prepared in accordance with the Disclosure and Transparency Rules ('DTR') of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed half-yearly consolidated financial information should be read in conjunction with the annual financial statements for the year ended 30 November 2018, which have been prepared in accordance with IFRSs as adopted by the European Union.

Except as described below, the accounting policies applied in these interim financial statements are consistent with those applied in the Group's consolidated financial statements for the year ended 30 November 2018. The changes in accounting policies are also expected to be reflected in the Group's consolidated financial statements as at and for the year ending 30 November 2019. The Group has adopted IFRS 15 'Revenue from Contracts with Customers' (see A) and IFRS 9 Financial Instruments (see B) from 1 December 2018. A number of other new standards are effective from 1 December 2018 but they do not have a material effect on the Group's financial statements.

A. IFRS 15 Revenue from Contracts with Customers

The Group has adopted IFRS 15, 'Revenue from Contracts with Customers', for the year ending 30 November 2019. This establishes a comprehensive framework for determining whether, how much and when revenue is recognised. The majority of the Group's transactions are unaffected by IFRS 15, however when the standard is applied to specific customer contracts previously recognised under construction contract accounting (IAS 11) this leads to a difference in the timing of recognising revenue. The impact of the timing difference varies from contract to contract. In addition, certain companies provide installation services for goods shipped to customers as part of their sale of goods contracts. Having reviewed these contracts, there is a change in accounting required under IFRS 15 to defer the installation related revenue.

As permitted by the standard, the Group has adopted the modified retrospective approach. Under this approach the comparatives for the year ended 30 November 2018 have not been restated. Instead, an adjustment in respect of the contracts open as at 1 December 2018 will be recognised in the opening retained earnings.

The following adjustment has been made to brought forward retained earnings and recognised in the Condensed Consolidated Statement of Changes in Equity:

   15.          Basis of preparation continued 

Impact of adopting IFRS 15 on the opening reserves as at 1 December 2018

 
                                 Retained 
                                 earnings 
                                Unaudited 
                                  GBP'000 
                              ----------- 
 Loss before tax                     (88) 
 Tax                                   31 
 Impact at 1 December 2018           (57) 
                              ----------- 
 

The impact of adoption in the period to 31 May 2019 can be seen below and arises primarily from timing differences due to measuring the progress of Aerospace & Industrial division contracts using an output method of measuring progress towards complete satisfaction of performance obligations, based on milestones reached under IFRS 15 rather than the cost to cost ("percentage completion") method used under IAS 18 and IAS 11.

Impact on the condensed consolidated income statement and other comprehensive income in the six months ended 31 May 2019

 
                                                               Amount without 
                                                 Adjustments         adoption 
                                 As reported       Unaudited        of IFRS15 
                                     GBP'000         GBP'000          GBP'000 
 Revenue                              72,039           (456)           71,583 
 
 Operating profit                      7,763           (237)            7,526 
 
 Total comprehensive income            4,016           (180)            3,836 
                              --------------  --------------  --------------- 
 

Impact on the condensed consolidated statement of financial position as at 31 May 2019

 
                                                                     Amount without 
                                                       Adjustments         adoption 
                                       As reported       Unaudited        of IFRS15 
                                           GBP'000         GBP'000          GBP'000 
 Non-current assets                         92,521               -           92,521 
 
 Current assets                             57,441               -           57,441 
 
 Current liabilities 
 Trade and other payables                 (23,739)         (8,583)         (32,322) 
 Current tax liabilities                   (1,356)              25          (1,331) 
 Derivative financial instruments             (43)               -             (43) 
 Provisions for other liabilities 
  and charges                             (10,435)           8,435          (2,000) 
                                          (35,573)           (123)         (35,696) 
 
 Net current assets                         21,838           (123)           21,715 
 
 Non-current liabilities                  (22,147)               -         (22,147) 
                                    --------------  --------------  --------------- 
 Net assets                                 92,212           (123)           92,089 
                                    --------------  --------------  --------------- 
 
 

B. IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. The standard replaces IAS 39 'Financial Instruments: Recognition and Measurement'. The adoption of IFRS 9 'Financial Instruments' from 1 December 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements, however the overall impact on the interim financial information is not material. In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated.

   15.          Basis of preparation continued 

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

This condensed half-yearly consolidated financial information has been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of certain current assets, financial assets and financial liabilities held for trading and derivative contracts, which are held at fair value.

The preparation of condensed half-yearly consolidated financial information in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed half-yearly consolidated financial information and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. In preparing the condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 30 November 2018, with the exception of changes in estimates that are required in determining the provision for income taxes.

After having made appropriate enquiries, including a review of progress against the Group's budget for 2019, its medium term plans and taking into account the banking facilities available until May 2022, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the condensed half yearly consolidated financial information. Accordingly, they continue to adopt the going concern basis in preparing this condensed half-yearly consolidated financial information.

This condensed half-yearly consolidated financial information and the comparative figures does not constitute full accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 November 2018, which were approved by the Board of Directors on 25 January 2019, and which include an unqualified audit report, no emphasis of matter paragraph and no statements under sections 498(2) or (3) of the Companies Act 2006, have been delivered to the Registrar of Companies. This condensed half-yearly consolidated financial information has been reviewed, not audited.

The condensed half-yearly consolidated financial information does not include all financial risk management information and disclosures required in the annual financial statements; it should be read in conjunction with the Group's annual financial statements for the year ended 30 November 2018. There have been no changes in any risk management policies since the year end.

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

Statement of directors' responsibilities

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

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

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

With the exception of Jasi Halai, appointed on 18 June 2019, the Directors of Porvair plc are listed in the Porvair plc Annual Report for the year ended 30 November 2018. A list of current Directors is maintained on the Porvair plc website www.porvair.com.

By order of the board

 
 Ben Stocks              Chris Tyler 
 Group Chief Executive   Group Finance Director 
 

21 June 2019

INDEPENT REVIEW REPORT TO PORVAIR PLC

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 May 2019 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated cash flow statement, condensed consolidated statement of changes in equity, and related notes 1 to 15. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

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

As disclosed in note 15, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 May 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Deloitte LLP

Statutory Auditor

Cambridge, United Kingdom

21 June 2019

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

END

IR SEEFFDFUSESM

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