Porvair : Preliminary Results and Board Changes

Operating review

Overview of 2019

	2019		2018		Growth
	£m		£m		%
Revenue	144.9		128.8		13
Operating profit	14.8		12.9		15
Adjusted operating profit*	15.6		14.3		9
Adjusted profit before tax*	14.8		13.5		9
Profit before tax	14.0		12.0		16
Adjusted earnings per share*	25.3p		22.9p		10
Earnings per share	23.6p		22.1p		7
Cash generated from operations	16.8		15.3
Net cash	4.0		6.6

* see note 1

Revenue growth was 13% (10% at constant currency). Strength in aerospace and industrial was partially offset by a slower start to the year in markets affected by global trade disturbances.

Profit before tax rose 16%. Adjusted (see note 1) profit before tax rose 9% and adjusted earnings per share increased 10% to 25.3 pence. The Group invested £14.1 million (2018: £13.5 million) in acquisitions and capital expenditure in 2019.

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

	5 years		10 years
	CAGR		CAGR
Revenue growth	7%		10%
Earnings per share growth	10%		31%
Adjusted earnings per share growth	12%		25%
	£m		£m
Cash from operations	71		123
Investment in acquisitions and capital expenditure	51		70

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, from a position of relative financial strength, invests 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 with long term growth potential.

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

3. Make new product development a core business activity.

4. Establish geographic presence where end-markets require.

5. Invest in both organic and acquired growth.

Therefore:

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

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

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

· Our geographic presence follows the markets we serve. In the last twelve months: 50% of revenue was in the Americas; 23% in Asia; 15% in Continental Europe; 11% 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, 52% of revenue was manufactured in the US, 35% in the UK, 9% in Continental Europe and 4% in China.

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

Corporate social responsibility

The Board recognises that responsible and sustainable business development is essential for creating long term value for stakeholders. Most of the products made by Porvair are used to the benefit of the environment. Our water analysis equipment measures contamination levels in water. Industrial filters are typically needed to reduce emissions or improve efficiency. Aerospace filters improve process reliability. Nuclear filters confine fissile materials. Metal Melt Quality filters reduce waste and help improve the strength to weight ratio of metal components. Our manufacturing facilities have limited emissions and we aim to reduce carbon intensity each year. A full Corporate Social Responsibility report is given as part of the Group's Annual Report.

Aerospace & Industrial

	2019		2018		Growth
	£m		£m		%
Revenue	64.6		50.5		28
Operating profit	8.2		7.7		6
Adjusted operating profit*	8.5		8.0		6

* see note 2

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

Revenue increased by 28% (26% at constant currency). Within the market segments served demand across the year was mixed. Shipments of spares for gasification accounted for revenue of £10.9 million (2018: £1.9 million). As noted previously, sales of these filters should repeat but will not be regular and are not expected to approach such levels in 2020. Aerospace offers more consistent growth, up 15% in the year, with demand driven by new work with Boeing, Bombardier and in fuel system inerting products. In the US, demand for marine emissions control filters was robust, with new regulations issued by the International Maritime Organization requiring tighter standards for the disposal of ballast water. These stronger areas were offset by weakness in microelectronics and certain US general industrial customers affected by US/China trade issues.

Investments were made to expand the plant in Boise, ID; to increase machining capacity in the UK; and in manufacturing productivity improvements across the division.

In September 2019 the Group acquired Royal Dahlman. Based in the Netherlands, Royal Dahlman specialises in industrial filtration and has particular expertise in certain petrochemical applications for which emission standards are expected to tighten. The business also offers well established routes to market in Benelux and Northern Europe, through which the combined business can offer its wider product range. It has been integrated into the division and traded as expected since acquisition.

Laboratory

	2019		2018		Growth
	£m		£m		%
Revenue	43.7		41.2		6
Inter segment revenue	(2.4)		(2.5)
External revenue	41.3		38.7		7
Operating profit	6.4		6.2		2
Adjusted operating profit*	6.6		6.5		2

* see note 2

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

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

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

Revenue in 2019 was up 6% with growth in Porvair Sciences offset by a flat year for Seal Analytical.

Porvair Sciences grew sales by 9% with demand increasing in most segments, supported by new filtration media products. Investments were made in production equipment and laboratory capability in the UK, where the patented molecular separation technology acquired in 2018 is being developed. These investments improved productivity and set-up times, and expanded laboratory capabilities, enhancing our ability to offer test facilities for customer-driven new product ideas. In the US, new clean room manufacturing capacity is being built in the Vineland, NJ plant.

Seal Analytical sales were flat, with demand from China affected by tariff changes, and lower production in the first half during the switch to the newest instrument platform, the AA500. Orders and shipments for this model increased through the second half, as did shipments of the complementary range of products made by Rohasys, the Dutch company acquired by the Group in 2017. Orders going into 2020 are healthy.

Metal Melt Quality

	2019		2018		Growth
	£m		£m		%
Revenue	39.0		39.6		(2)
Operating profit	2.8		2.4		20

The Metal Melt Quality 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.

Reported revenues were 2% lower, but fell 6% at constant currency, affected in the US by global trade issues in automotive, industrial and agricultural end markets. Revenue in China grew 5%, as did sales of the more specialist metal filtration products used in nickel cobalt alloys and investment casting. 2019 was therefore a more difficult trading year and it is encouraging to report that operating profits nevertheless increased by 20%, with the management team focused on productivity and manufacturing efficiency.

Progress with our proprietary 3D manufactured filters has been promising, with new customers added in the year, and our advanced ceramics business based in Illinois has had a strong year.

Losses in China reduced by 33% in constant currency, helped by increased local sourcing of raw materials. As a proportion of the Group's profits these losses are modest but improvement must continue. Chinese aluminium smelters are starting to look more carefully at their supply chains, prompted both by 25% tariffs on imported aluminium filters and the Chinese government's 'China 2025' quality and environmental improvement programme. This is encouraging, as only Porvair offers a phosphate-free filter to the market, but qualification processes are slower than we would like.

Dividends

The Board has grown the dividend every year for the last ten years and re-affirms its progressive dividend policy. The Board recommends an increased final dividend of 3.2 pence per share, a cost of £1.5 million (2018: 3.0 pence per share, a cost of £1.4 million). The full year dividend increased by 7% to 4.9 pence per share, a cost of £2.2 million (2018: 4.6 pence per share, a cost of £2.1 million). The Company has £19.2 million (2018: £19.5 million) of distributable reserves at 30 November 2019.

Staff and Board

Porvair's success in recent years is entirely due to the hard work, enthusiasm and dedication of its staff, many of whom remain with the Group for years. The Board offers them its sincere thanks. During the year we welcomed the staff of Royal Dahlman to the Group.

In June, we were pleased to welcome Jasi Halai to the Board. Jasi is Financial Controller and Operating Officer for 3i plc. She has joined the Audit, Remuneration and Nomination Committees. Paul Dean, currently Senior Non-Executive Director and Chair of the Audit Committee will step down from the Board on 3 February following the publication of these results. Paul has been an outstanding Non-Executive Director of Porvair since 2012 and we are most grateful for his many contributions. Sally Martin will become the Senior Non-Executive Director and Jasi Hali will chair the Audit Committee.

Current trading and outlook

These results demonstrate the benefits of Porvair's strategy. Some segments have grown in 2019, others have maintained momentum through operational improvements. 2020 is likely to be similar. The Group's fundamentals are robust. Over the last ten years, Porvair has delivered revenue growth of 162% (10% CAGR). The Group is positioned to benefit from global trends: tighter environmental regulations; growth in analytical science; the expansion of air travel; the replacement of plastic by aluminium; and the drive for manufacturing process efficiency. These trends offer opportunities for which the Group develops differentiated products. Trading in 2020 has started well, order books are healthy and investment plans are on track. Recent acquisitions are trading as expected. The Group is looking forward with confidence.

Ben Stocks

Group Chief Executive

31 January 2020

Financial review

Group results

	2019		2018		Growth
	£m		£m		%
Revenue	144.9		128.8		13
Operating profit	14.8		12.9		15
Profit before tax	14.0		12.0		16
Profit after tax	10.8		10.0		7

Reported revenue growth was 13%, 10% at constant currency. 7% was generated from organic growth and 3% from acquisitions. Operating profit was £14.8 million (2018: £12.9 million) and profit before tax was £14.0 million (2018: £12.0 million). Profit after tax increased by 7% to £10.8 million.

Alternative performance measures - profit

	2019		2018		Growth
	£m		£m		%
Adjusted operating profit	15.6		14.3		9
Adjusted profit before tax	14.8		13.5		9
Adjusted profit after tax	11.5		10.4		11

The Group presents constant currency revenue measures and other alternative performance measures to enable a better understanding of its trading performance (see note 1). Adjusted operating profit and adjusted profit before tax exclude:

· the impact of acquiring businesses:

o the amortisation of acquired intangible assets of £0.6 million (2018: £0.6 million); and

o acquisition expenses and other adjustments charged to the income statement related to acquiring businesses of £0.3 million (2018: £0.1 million).

· other items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading. In the prior year, the adjusted operating profit and adjusted profit before tax included an exceptional charge of £0.8 million (2019: £nil). Following legal guidance, the benefits provided by the Group's defined benefit pension plan were enhanced in the prior year to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.

Adjusted profit after tax excludes the adjustments to profit before tax described above and, in the case of the prior year, excludes the tax effect of the adjusted items and an exceptional one offtax credit of £0.8 million (2019: £nil), reflecting a reduction in the Group's deferred tax liability from the change in US tax rates from December 2017 enacted in the US Tax Cuts and Jobs Act.

Group operating performance

Revenue growth was 13% (10% at constant currency) and adjusted operating profit growth was 9%. Adjusted operating margin was 10.8% (2018: 11.1%). Adjusted operating margins in the Aerospace & Industrial division were 13.2% (2018: 15.9%). Additional costs were incurred to meet the strong aerospace order book; operating profits fell in the two US plants associated with global microelectronics and US general industrial; and further amounts were provided for gasification warranty risks. Adjusted operating margins in the Laboratory division were 15.1% (2018: 15.8%), held back marginally by currency translation effects. Metal Melt Quality operating margins increased to 7.3% (2018: 6.0%). Improved operational efficiencies in the US increased margins to 11.3% (2018: 11.0%) and losses in China fell by 33%. Adjusted Central costs reduced to £2.4 million (2018: £2.6 million).

Impact of exchange rate movements on performance

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

	2019		2018
Average rate for translating the results:
US $ denominated operations	$1.27:£		$1.34:£
Euro denominated operations	€1.14:£		€1.13:£
Closing rate for translating the balance sheet:
US $ denominated operations	$1.29:£		$1.28:£
Euro denominated operations	€1.17:£		€1.13:£

A weaker Sterling average rate against the US dollar over the year increased reported revenues on translation by 3%.

In the year, the Group sold $27.0 million (2018: $17.8 million) at an average rate of $1.28:£1 (2018: $1.33:£1) and €3.5 million (2018: €3.9 million) at an average rate of €1.14:£1 (2018: €1.13:£1).

At 30 November 2019, the Group had $9.9 million (2018: $nil) of outstanding forward foreign exchange contracts; hedge accounting has been applied to $8.6 million of these contracts. The Group had $7.8 million (2018: $6.2 million) of net current assets on the UK operations' balance sheet.

Impact of the adoption of IFRS 15

The Group has adopted IFRS 15 for the first time in the year ended 30 November 2019. 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 installation contracts, there is a change in accounting required under IFRS 15 to defer the related revenue.

Comparatives for the year ended 30 November 2018 have not been restated. Instead, an adjustment to reduce retained earnings by £57,000 as at 1 December 2018 has been recognised in the opening retained earnings.On initial adoption at 1 December 2018 the Group recognised £8.2 million of provisions and eliminated deferred revenue of £7.7 million.

Had IFRS 15 not been adopted by the Group in the current year, revenue would have been £4.0 million higher and operating profit would have been £0.4 million lower.

Finance costs

Net interest payable comprises bank borrowing costs, interest on the Group's pension deficit and the cost of unwinding discounts on provisions. Overall, it remained stable at £0.8 million (2018: £0.8 million). The defined benefit pension scheme interest cost was £0.4 million (2018: £0.4 million), bank interest and borrowing facilities non-utilisation fees were £0.3 million (2018: £0.3 million) and there was a charge of £0.1 million (2018: £0.1 million) for unwinding discounted provisions.

Interest cover was 19 times (2018: 17 times). Interest cover on bank finance costs was 45 times (2018: 44 times).

Tax

The Group tax charge was £3.2 million (2018: £2.0 million, after removing the adjusting items described in note 1 to the accounts, the Group's underlying tax charge was £3.1 million). This is an effective rate of 23% (2018: 24%), which is higher than the UK standard corporate tax rate of 19.0% (2018: 19.0%). The tax rate in the UK was lower than the standard rate because of tax relief on the exercise of share options. US tax was at an effective rate of 23% (2018: 23%). The Group tax rate was pushed up by profits made in Germany, which attract a 30% tax rate (2018: 32%). The Group has not taken a tax credit relating to the losses arising in China because it cannot be certain that the asset would be recovered, this has increased the tax rate by 2.0% (2018: 3.2%).

The tax charge comprises current tax of £2.6 million (2018: £2.7 million) and a deferred tax charge of £0.6 million (2018: credit of £0.7 million).

The Group has current tax provisions of £0.6 million (2018: £1.5 million). The current tax provision includes £1.2 million (2018: £1.0 million) for uncertainties relating to the interpretation of tax legislation in the Group's operating territories.

The Group carries a deferred tax asset of £2.4 million (2018: £2.3 million) and a deferred tax liability of £2.6 million (2018: £2.0 million). The deferred tax asset relates principally to the deficit on the pension fund and share-based payments. The deferred tax liability relates to accelerated capital allowances, capitalised development costs and other timing differences, predominantly arising in the US and acquired intangibles in the Netherlands.

Total equity and distributable reserves

Total equity at 30 November 2019 was £95.3 million (2018: £89.5 million, £89.4 million after adoption of IFRS 15), an increase of 7% over the prior year.

Increases in total equity arose from: profit after tax of £10.7 million (2018: £10.0 million); employee share option schemes net of tax of £0.7 million (2018: £0.4 million); and £0.6 million (2018: £0.1 million) arising on the proceeds of the issue of shares on share option exercises.

Reductions in total equity arose from: dividends paid of £2.1 million (2018: £2.0 million); purchases by the Employee Benefit Trust of the Company's own shares charged directly to equity of £0.6 million (2018: £0.4 million); a pension scheme actuarial loss (net of tax) of £2.3 million (2018: gain of £2.9 million); and exchange losses (net of tax) on translation of £1.1 million (2018: gain of £3.5 million).

The Company had £19.2 million (2018: £19.5 million) of distributable reserves at 30 November 2019. The Company's distributable reserves increased in the year as a result of dividends received from other Group companies, offset by an actuarial loss, head office costs and dividends paid to shareholders.

Return on capital employed

The Group's after tax return on capital employed of 14% (2018: 15%) gives a measure of the operating return the Group makes on all its invested capital. It fell slightly in the year as a result of acquiring Royal Dahlman in the final quarter of the year. The after tax return on operating capital employed of 36% (2018: 43%) gives a measure of the returns that the Group makes on its fixed assets and working capital. It fell in 2019, as a result of increases in inventories and trade receivables from strong trading in the final quarter and a good order book for the first quarter of 2020. The Group's divisions have post-tax weighted average costs of capital of between 7% and 8%.

Cash flow

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

	2019		2018
	£m		£m
Operating cash flow before working capital	18.1		17.0
Working capital movement	(1.3)		(1.7)
Cash generated from operating activities	16.8		15.3
Interest	(0.3)		(0.3)
Tax	(3.3)		(2.4)
Capital expenditure net of disposals	(4.3)		(4.5)
	8.9		8.1
Acquisitions	(9.8)		(9.0)
Dividends	(2.1)		(2.0)
Share issue proceeds	0.5		0.1
Purchase of EBT shares	(0.6)		(0.4)
Net cash decrease in the year	(3.1)		(3.2)
Exchange gains	0.5		-
Net cash at 1 December	6.6		9.8
Net cash at 30 November	4.0		6.6

Generating free cash flow is key to the Group's business model and operating cash flow of £16.8 million (2018: £15.3 million) represented an 89% (2018: 88%) conversion rate of operating profit before depreciation and amortisation. Net working capital increased by £1.3 million (2018: £1.7 million), mainly arising in the Aerospace & Industrial division. A strong final quarter and purchases made for manufacture and delivery of the strong order book meant that receivables increased by £0.7 million (2018: £1.6 million) and inventories increased by £2.3 million (2018: £2.5 million). Payables and provisions increased by £1.7 million (2018: £2.4 million).

Provisions, contingent liabilities and performance bonds

At 30 November 2019, the Group had the following advanced payment bonds (relating to monies received in advance on contracts) and performance bonds issued to customers in US dollars and Euros:

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

			$'000		€'000
Advanced payment bonds			2,360		-
Performance bonds			7,476		-
At 30 November 2018			9,836		-

$8,478,000 (2018: $7,476,000) of the performance bonds relate to the contracts for filtration systems provided for gasification projects. These projects are being commissioned, a process which is taking several years. The Group has provided its best estimate of the amount of any potential loss arising from rectification and claims arising on these contracts within the £9.5 million warranty provisions disclosed in note 9. The maximum potential unprovided exposure under these contracts is limited to £11.5 million. In December 2019, a $930,000 performance bond was called by a customer, paid and cancelled. The uncalled performance bonds are expected to be called or released no later than March 2023.

Capital expenditure

Capital expenditure was £4.3 million (2018: £4.5 million) in the year. Expenditure was spread across each division: £0.6 million was spent on buildings and infrastructure including adding a further 20,000 square feet of space in the Laboratory division in the US; £3.9 million was spent on plant and machinery; £0.4 million specifically related to health and safety upgrades; £3.5 million related to capacity and productivity improvements; and £0.4 million was spent on intangible assets including software upgrades and intellectual property costs.

Acquisitions

£9.8 million was spent on acquisitions in the year. £6.8 million was spent to acquire Dahlman Industrial Group B.V. ('Royal Dahlman') to increase the Aerospace & Industrial division's expertise in petroleum filtration and engineering. The Company, based in the Netherlands, designs and builds filtration packages for oil and gas applications and distributes filters for industrial applications in the Benelux region. £3.0 million was paid to settle earnout payments in relation to Rohasys B.V. and J G Finneran Associates, Inc. There is up to £0.9 million, based on an earnout, to be paid over the next two years in relation to the acquisition of Rohasys.

Pension schemes

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

	2019		2018
	£m		£m
Charged to operating costs:
Defined contribution schemes	2.1		1.7
Defined benefit scheme	0.6		1.5
Pension protection levy	0.1		0.1
Total pensions charged to operating costs	2.8		3.3
Charged to interest payable:
Defined benefit scheme	0.4		0.4
Total pensions charged to interest payable	0.4		0.4
Total pension costs	3.2		3.7

The Group's cash contributions paid to The Plan were £1.6 million (2018: £1.6 million).

The Group's net retirement benefit obligation was £14.5 million (2018: £12.4 million). The Plan's liabilities increased to £45.2 million (2018: £39.2 million). The Plan's assets increased to £30.8 million (2018: £27.0 million). There were a further £0.1 million (2018: £0.2 million) of non-Plan liabilities.

The actuarial loss in the year of £2.7 million (2018: gain of £3.6 million) was recognised in the statement of comprehensive income. The Plan's assets achieved an actuarial gain of £3.2 million (2018: loss of £1.4 million). The experience loss of £0.9 million (2018: £nil) relates to adjustments arising from the triennial valuation completed in the year. The actuarial loss on the liabilities of £5.0 million (2018: gain of £5.0 million) arose principally from changes to the discount rate used to value The Plan's liabilities and a change in the mortality assumption:

· The discount rate reduced from 3.0% to 1.95%, as a result of lower AA bond yields, which accounted for £5.9 million in increased liabilities.

· The mortality assumptions have been updated to incorporate the CMI 2018 Core Projection Model. This reduced the life expectancy of 65 year old women by 0.5 years and men by 0.4 years. The liabilities reduced by £0.9 million as a result.

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

Borrowings and bank finance

At the year end, the Group had cash balances of £12.9 million (2018: £11.5 million) and borrowings of £8.9 million (2018: £4.9 million).

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

At 30 November 2019, the Group had net cash of £4.0 million (2018: £6.6 million), €13.3 million (£11.4 million) of unused facilities (2018: €17.3 million of unused facilities (£15.3 million)), and an unutilised overdraft facility of £2.5 million (2018: £2.5 million).

Finance and treasury policy

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

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

Adoption of IFRS 16 in year ending 30 November 2020

The Group will adopt IFRS 16 in its accounts for the year ending 30 November 2020. The most significant impact identified will be that the Group's leases for property, plant and equipment will be brought on to the balance sheet as 'right-of-use assets'. This will result in around £14.3 million of additional fixed assets being recognised at 1 December 2019; around £14.8 million of discounted future lease commitments recognised as liabilities; and adjustments to eliminate rent prepayments, lease incentives and onerous lease commitments. There is not expected to be any change to opening reserves.

The profile of expenses related to leasing arrangements will change. Straight line operating lease expenses will be replaced by a straight-line depreciation of the right-of-use assets and interest charges on lease liabilities, which follow a reducing-balance profile. Consequently, there will be earlier recognition of cost under IFRS 16 compared to the current treatment under IAS 17. If no additional leases are signed in the year ending 30 November 2020, then the overall impact on the Group's income statement for the year will be to reduce profit before tax by no more than £0.3 million. Over the lifetime of each lease there will be no change in the overall income statement impact or the cash paid out.

International Trade

50% of Group revenue is manufactured in the US and higher US tariffs have had an effect on trading. A few customers in the US and China have switched back to domestic suppliers, and the Group has both won and lost accounts as a result. The net effect has been small. The UK leaves the EU on 31 January 2020 with transitional arrangements coming into force until at least 31 December 2020. The Board does not expect the impact in the coming year to be significant. Until specific future EU trade arrangements become clear, a definitive statement of risks associated with the period after 31 December 2020 cannot be made. The Group has reviewed tariff categories that would apply to its products under WTO terms and has confirmed that its EU nationals staff have a right to remain in the UK. The Board notes that revenues between the UK and Continental Europe were less than 10% of total revenues in 2019.

Chris Tyler

Group Finance Director

31 January 2020

Consolidated income statement

For the year ended 30 November

		Note	2019		2018
Continuing operations			£'000		£'000
Revenue		1,2	144,932		128,823
Cost of sales			(97,505)		(84,444)
Gross profit			47,427		44,379
Distribution costs			(2,259)		(2,172)
Administrative expenses			(30,381)		(29,339)
Adjusted operating profit		1,2	15,592		14,343
Adjustments
Equalisation of guaranteed minimum pension		1	-		(773)
Amortisation of acquired intangibles		1	(588)		(564)
Other acquisition related adjustments		1	(217)		(138)
Operating profit		1,2	14,787		12,868
Finance income			7		6
Finance costs			(809)		(836)
Profit before income tax		1,2	13,985		12,038
Adjusted income tax expense			(3,220)		(3,113)
Adjustments
Tax effect of adjustments to operating profit		1	-		325
Exceptional reduction of US deferred tax liability		1	-		778
Income tax expense			(3,220)		(2,010)
Profit for the year			10,765		10,028
Profit attributable to:
Owners of the parent			10,768		10,045
Non-controlling interests			(3)		(17)
Profit for the year			10,765		10,028
Earnings per share (basic)		3	23.6p		22.1p
Adjusted earnings per share (basic)		3	25.3p		22.9p
Earnings per share (diluted)		3	23.5p		22.0p
Adjusted earnings per share (diluted)		3	25.3p		22.8p

Consolidated statement of comprehensive income

For the year ended 30 November

		2019 £'000		2018 £'000
Profit for the year		10,765		10,028
Other comprehensive (expense)/income:
Items that will not be reclassified to profit and loss
Actuarial (losses)/gains in defined benefit pension plans net of tax		(2,278)		2,948
Items that may subsequently be classified to profit and loss
Exchange differences on translation of foreign subsidiaries		(1,212)		3,606
Tax relating to components of other comprehensive income		149		(149)
Changes in fair value of forex contracts held as a cash flow hedge		35		-
		(1,028)		3,457
Net other comprehensive (expense)/income		(3,306)		6,405
Total comprehensive income for the year		7,459		16,433
Comprehensive income attributable to:
Owners of the parent		7,462		16,450
Non-controlling interests		(3)		(17)
Total comprehensive income for the year		7,459		16,433

Consolidated balance sheet

As at 30 November

	Note		2019 £'000		2018 £'000
Non-current assets
Property, plant and equipment	5		22,779		21,827
Goodwill and other intangible assets	6		71,512		67,001
Deferred tax asset			2,360		2,304
Other receivables			1,048		-
			97,699		91,132
Current assets
Inventories			23,197		19,856
Trade and other receivables			24,153		22,336
Derivative financial instruments			48		-
Cash and cash equivalents			12,889		11,492
			60,287		53,684
Current liabilities
Trade and other payables	7		(25,989)		(32,826)
Current tax liabilities			(564)		(1,530)
Provisions for other liabilities and charges	9		(9,526)		(506)
			(36,079)		(34,862)
Net current assets			24,208		18,822
Non-current liabilities
Borrowings	8		(8,875)		(4,867)
Deferred tax liability			(2,588)		(2,032)
Retirement benefit obligations			(14,450)		(12,356)
Other payables			(417)		(1,008)
Provisions for other liabilities and charges	9		(242)		(219)
			(26,572)		(20,482)
Net assets			95,335		89,472
Capital and reserves
Share capital	10		921		917
Share premium account	10		36,504		35,958
Cumulative translation reserve			9,358		10,570
Retained earnings			48,552		42,024
Equity attributable to owners of the parent			95,335		89,469
Non-controlling interests			-		3
Total equity			95,335		89,472

Consolidated cash flow statement

For the year ended 30 November

	Note		2019 £'000		2018 £'000
Cash flows from operating activities
Cash generated from operations	14		16,758		15,335
Interest paid			(343)		(345)
Tax paid			(3,256)		(2,419)
Net cash generated from operating activities			13,159		12,571
Cash flows from investing activities
Interest received			7		6
Acquisition of subsidiaries (net of cash acquired)	11, 12		(9,761)		(9,007)
Purchase of property, plant and equipment	5		(3,943)		(3,796)
Purchase of intangible assets	6		(363)		(656)
Net cash used in investing activities			(14,060)		(13,453)
Cash flows from financing activities
Proceeds from issue of ordinary share capital	10		550		131
Purchase of Employee Benefit Trust shares			(623)		(416)
Increase in borrowings			4,648		1,913
Dividends paid to shareholders	4		(2,146)		(1,957)
Net cash from/(used in) financing activities			2,429		(329)
Net increase/(decrease) in cash and cash equivalents			1,528		(1,211)
Exchange (losses)/gains on cash and cash equivalents			(131)		206
			1,397		(1,005)
Cash and cash equivalents at 1 December			11,492		12,497
Cash and cash equivalents at 30 November			12,889		11,492

Reconciliationof net cash flow to movement in net cash

		2019 £'000		2018 £'000
Net increase/(decrease)in cash and cash equivalents		1,528		(1,211)
Effects of exchange rate changes		509		(37)
Increase in borrowings		(4,648)		(1,913)
Net cash at 1 December		6,625		9,786
Net cash at 30 November		4,014		6,625

Consolidated statement of changes in equity

	Share capital £'000	Share premium account £'000	Cumulative translation reserve £'000	Retained earnings £'000	Total £'000	Non-controlling interest £'000	Total £'000
Balance at 1 December 2017	913	35,831	6,964	31,161	74,869	20	74,889
Profit for the year	-	-	-	10,045	10,045	-	10,045
Other comprehensive income	-	-	3,606	2,799	6,405	-	6,405
Total comprehensive income for the year	-	-	3,606	12,844	16,450	-	16,450
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(416)	(416)	-	(416)
Employee share option schemes:
- value of employee services net of tax	-	-	-	392	392	-	392
Proceeds from shares issued	4	127	-	-	131	-	131
Dividends paid (note 4)	-	-	-	(1,957)	(1,957)	-	(1,957)
Total transactions with owners recognised directly in equity	4	127	-	(1,981)	(1,850)	-	(1,850)
Adjustment arising from change in non-controlling interest	-	-	-	-	-	(17)	(17)
Balance at 30 November 2018	917	35,958	10,570	42,024	89,469	3	89,472
IFRS 15 adjustment	-	-	-	(57)	(57)	-	(57)
Balance at 1 December 2018	917	35,958	10,570	41,967	89,412	3	89,415
Profit for the year	-	-	-	10,768	10,768	-	10,768
Other comprehensive expense	-	-	(1,212)	(2,094)	(3,306)	-	(3,306)
Total comprehensive (expense)/income for the year	-	-	(1,212)	8,674	7,462	-	7,462
Transactions with owners:
Consideration paid for purchase of own shares (held in trust)	-	-	-	(623)	(623)	-	(623)
Employee share option schemes:
- value of employee services net of tax	-	-	-	680	680	-	680
Proceeds from shares issued	4	546	-	-	550	-	550
Dividends paid (note 4)	-	-	-	(2,146)	(2,146)	-	(2,146)
Total transactions with owners recognised directly in equity	4	546	-	(2,089)	(1,539)	-	(1,539)
Adjustment arising from change in non-controlling interest	-	-	-	-	-	(3)	(3)
Balance at 30 November 2019	921	36,504	9,358	48,552	95,335	-	95,335

Notes

1. Alternative performance measures

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

Alternative revenue measures

		2019		2018		Growth
Aerospace & Industrial		£'000		£'000		%
Underlying revenue		57,536		47,916		20
Acquisitions		4,952		1,671
Revenue at constant currency		62,488		49,587		26
Exchange		2,155		949
Revenue as reported		64,643		50,536		28
Laboratory
Revenue at constant currency		38,853		37,261		4
Exchange		2,427		1,398
Revenue as reported		41,280		38,659		7
Metal Melt Quality
Revenue at constant currency		35,377		37,678		(6)
Exchange		3,632		1,950
Revenue as reported		39,009		39,628		(2)
Group
Underlying revenue		131,766		122,855		7
Acquisitions		4,952		1,671
Revenue at constant currency		136,718		124,526		10
Exchange		8,214		4,297
Revenue as reported		144,932		128,823		13

Revenue at constant currency is derived from translating overseas subsidiaries results at budgeted fixed exchange rates. In 2019 and 2018 the rates used were $1.4:£ and €1.2:£, compared with reported rates of $1.27:£1 (2018: $1.34:£1) and €1.14:£1 (2018: €1.13:£1).

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

1. Alternative performance measures continued

Alternative profit measures

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

				2019							2018
		Adjusted £'000		Adjustments £'000			Reported £'000			Adjusted £'000	Adjustments £'000		Reported £'000
Operating profit			15,592		(805)	14,787			14,343		(1,475)	12,868
Finance income			7		-	7			6		-	6
Finance costs			(809)		-	(809)			(836)		-	(836)
Profit before income tax			14,790		(805)	13,985			13,513		(1,475)	12,038
Income tax expense			(3,220)		-	(3,220)			(3,113)		1,103	(2,010)
Profit after tax			11,570		(805)	10,765			10,400		(372)	10,028

	2019		2018
	£'000		£'000
Equalisation of guaranteed minimum pension	-		(773)
Amortisation of intangible assets acquired through acquisitions	(588)		(564)
Release of contingent consideration	36		-
Acquisition expenses	(253)		(138)
Adjustments affecting operating profit	(805)		(1,475)
Tax effect of adjustments	-		325
Tax - exceptional item	-		778
Adjustments affecting tax	-		1,103
Total adjusting items	(805)		(372)

Adjusted operating profit and adjusted profit before tax exclude:

· the impact of acquiring businesses:

o the amortisation of acquired intangible assets of £0.6 million (2018: £0.6 million); and

o acquisition expenses and other adjustments charged to the income statement related to acquiring businesses of £0.3 million (2018: £0.1 million).

· other items that are considered significant and where treatment as an adjusted item provides a more consistent assessment of the Group's trading. In the prior year, the adjusted operating profit and adjusted profit before tax included an exceptional charge of £0.8 million (2019: £nil). Following legal guidance, the benefits provided by the Group's defined benefit pension plan were enhanced in the prior year to equalise its guaranteed minimum pensions for men and women on benefits earned between 17 May 1990 and 6 April 1997.

Adjusted profit for the year excludes the adjustments to profit before tax together with their tax effect and an exceptional one offtax credit of £nil (2018: £778,000) reflecting, in the prior year, 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.

Return on capital employed

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

· return on capital employed of 14% (2018: 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 position; and

· return on operating capital employed of 36% (2018: 43%) is calculated on the same basis except that the capital employed is adjusted to remove the average of the opening and closing goodwill and the opening and closing pension deficit to give a measure of the operating capital.

2. Segment information

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

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

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

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

2. Segment information continued

Segment assets and liabilities

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

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

Geographical analysis

	2019				2018
	By destination £'000		By origin £'000		By destination £'000		By origin £'000
Revenue
United Kingdom	16,394		50,058		16,494		38,984
Continental Europe	21,844		13,543		19,322		10,949
United States of America	67,214		75,336		56,159		73,979
Other NAFTA	2,310		-		8,304		-
South America	2,038		-		2,206		-
Asia	33,847		5,995		24,914		4,911
Africa	1,285		-		1,424		-
	144,932		144,932		128,823		128,823

3. Earnings per share

	2019				2018
Total	Earnings £'000	Weighted average number of shares	Per share amount (pence)		Earnings £'000	Weighted average number of shares	Per share amount (pence)
Earnings attributable to ordinary shareholders	10,768				10,045
Shares in issue		45,871,417				45,705,419
Shares owned by the Employee Benefit Trust		(183,308)				(156,552)
Basic earnings	10,768	45,688,109	23.6		10,045	45,548,867	22.1
Effect of dilutive securities - share options	-	47,240	(0.1)		-	102,380	(0.1)
Diluted earnings	10,768	45,735,349	23.5		10,045	45,651,247	22.0

	2019				2018
Adjusted	Earnings £'000	Weighted average number of shares	Per share amount (pence)		Earnings £'000	Weighted average number of shares	Per share amount (pence)
Earnings attributable to ordinary shareholders	10,768				10,045
Adjusting items (note 1)	805				372
Adjusted earnings attributable to ordinary shareholders	11,573				10,417
Adjusted basic earnings	11,573	45,688,109	25.3		10,417	45,548,867	22.9
Adjusted diluted earnings	11,573	45,735,349	25.3		10,417	45,651,247	22.8

4. Dividends per share

	2019			2018
	Per share	£'000		Per share	£'000
Final dividend paid	3.0p	1,368		2.7p	1,229
Interim dividend paid	1.7p	778		1.6p	728
	4.7p	2,146		4.3p	1,957

The Directors recommend the payment of a final dividend of 3.2 pence per share (2018: 3.0 pence per share) on 5 June 2020 to shareholders on the register on 1 May 2020; the ex-dividend date is 30 April 2020. This makes a total dividend for the year of 4.9 pence per share (2018: 4.6 pence per share).

5. Property, plant and equipment

		Land and buildings		Assets in the course of construction		Plant, machinery and equipment		Total
Cost		£'000		£'000		£'000		£'000
At 1 December 2018		11,206		2,178		38,807		52,191
Reclassification		378		(865)		487		-
Additions		500		83		3,360		3,943
Acquisitions		50		-		237		287
Disposals		(77)		-		(674)		(751)
Exchange differences		(120)		(8)		(408)		(536)
At 30 November 2019		11,937		1,388		41,809		55,134

Depreciation
At 1 December 2018		(3,405)		-		(26,959)		(30,364)
Charge for the year		(348)		-		(2,582)		(2,930)
Disposals		20		-		609		629
Exchange differences		39		-		271		310
At 30 November 2019		(3,694)		-		(28,661)		(32,355)

Net book value
At 30 November 2019		8,243		1,388		13,148		22,779
At 30 November 2018		7,801		2,178		11,848		21,827

6. Goodwill and other intangible assets

	Goodwill		Development expenditure capitalised		Software capitalised		Trademarks, knowhow and other intangibles		Total
	£'000		£'000		£'000		£'000		£'000
Net book amount at 1 December 2018	62,761		208		739		3,293		67,001
Additions	-		16		163		184		363
Acquisitions	3,888		-		39		2,194		6,121
Disposals	-		-		(4)		-		(4)
Amortisation on disposed assets	-		-		4		-		4
Amortisation charges	-		(69)		(110)		(634)		(813)
Exchange differences	(981)		(1)		(26)		(152)		(1,160)
Net book amount at 30 November 2019	65,668		154		805		4,885		71,512

At 30 November 2019	Goodwill		Development expenditure capitalised		Software capitalised		Trademarks, knowhow and other intangibles		Total
	£'000		£'000		£'000		£'000		£'000
Cost	84,326		903		2,047		7,516		94,792
Accumulated amortisation and impairment	(18,658)		(749)		(1,242)		(2,631)		(23,280)
Net book amount	65,668		154		805		4,885		71,512

7. Trade and other payables

Amounts falling due within one year:	2019 £'000		2018 £'000
Trade payables	14,728		12,046
Taxation and social security	1,016		628
Other payables	897		2,884
Accruals and deferred income	9,348		17,268
At 30 November	25,989		32,826

8. Borrowings

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

At 30 November 2019, the Group had €13.3 million of unused facilities (2018: €17.3 million of unused facilities) and an unutilised overdraft facility of £2.5 million (2018: £2.5 million).

9. Provisions

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

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

Provisions arise from probable claims arising from major contracts, discounted dilapidations provisions for leased property, which is expected to be required in 2023, and sale warranties which expire by 2020. The amount charged in the year of £801,000 arose on additional sales made in the year. The amount released in the prior year of £711,000 arose on the completion of contracts. Also see note 13.

10. Share capital and premium

		Number of shares		Ordinary shares		Share premium account		Total
		Thousands		£'000		£'000		£'000
At 1 December 2018		45,843		917		35,958		36,875
Issue of shares on exercise of share options		198		4		546		550
At 30 November 2019		46,041		921		36,504		37,425

In October and November 2019, 197,600 ordinary shares of 2 pence each were issued on the exercise of Save As You Earn share options for cash consideration of £550,000.

The Group uses an Employee Benefit Trust (EBT) to purchase shares in the Company to satisfy entitlements, granted since the Company's AGM in 2015, under the Group's Long Term Incentive Plan. The EBT has waived its rights to dividends. During the year, the Group purchased 114,000 ordinary shares of 2 pence each (2018: 84,000) for a total consideration of £623,000 (2018: £416,000). During the year the EBT issued 164,600 ordinary shares of 2 pence each (2018: nil) to satisfy the exercise of Long Term Share Plan share options. The cost of the shares held by the EBT is deducted from retained earnings. The EBT is financed by a repayable-on-demand loan from the Group of £1,592,000 (2018: £968,000). As at 30 November 2019 the EBT held a total of 145,400 ordinary shares of 2 pence each (2018: 196,000) at a cost of £773,000 (2018: £968,000) and a market value of £878,000 (2018: £833,000).

11. Acquisitions

On 4 September 2019 the Group, through its subsidiary Porvair Holdings B.V., purchased 100% of the share capital of Dahlman Industrial Group B.V. ('Royal Dahlman') to increase the Aerospace & Industrial division's expertise in petroleum filtration engineering. The Company is based in the Netherlands. The trade is the design and build of filtration packages for oil and gas applications and the distribution of filters for industrial applications in the Benelux region. The total consideration was €7,750,000 (£7,010,000), which was paid in cash on the acquisition date, together with €151,000 (£137,000) to settle an outstanding loan. There are no further payments due on this acquisition. In the period since acquisition, the business has contributed €2,942,000 (£2,587,000) sales and €6,000 (£5,000) of underlying operating profit to the Group results. The direct costs of acquisition of £337,000 were charged to the income statement in the current and prior year. If Royal Dahlman had been consolidated from 1 December 2018, the consolidated statement of income would show pro-forma revenue of £157.7 million and operating profit of £15.2 million.

						Total
						£'000
Purchase consideration:
Cash paid						7,010
Loan repaid						137
Total purchase consideration						7,147
Fair value of net assets acquired						(3,259)
Goodwill						3,888

11. Acquisitions continued

Recognised amounts of identifiable assets acquired and liabilities assumed							Fair value
							£'000
Property, plant and equipment							287
Software							39
Trade name							451
Customer list							1,743
Inventory							1,322
Trade receivables							2,343
Trade payables							(1,610)
Accruals and other creditors							(1,518)
Deferred tax liability							(332)
Cash acquired							341
Other working capital (net)							193
Net assets acquired							3,259
Purchase consideration settled in cash							7,010
Loan settled on acquisition							137
Cash acquired							(341)
Cash outflow on acquisition							6,806

An independent valuation of the identifiable intangible assets has been carried out in the period. The goodwill is attributable to the non-contractual relationships, the synergies between the business acquired and the existing operations of the Group and the potential to develop the technologies acquired. The goodwill recognised is attributable to the Aerospace & Industrial division and is not expected to be deductible for income tax purposes. The purchase has been accounted for as an acquisition. The intangible assets arising on the acquisition are to be written off between eight and 20 years.

12. Deferred and contingent consideration on acquisitions

			Rohasys		JG Finneran Associates Inc.		Total
			£'000		£'000		£'000
At 1 December 2018			1,541		2,351		3,892
Cash paid in the year			(591)		(2,364)		(2,955)
Release of contingent consideration			(36)		-		(36)
Release of discount			89		-		89
Exchange movements			(55)		13		(42)
At 30 November 2019			948		-		948

Included within other payables	2019 £'000		2018 £'000
Deferred and contingent consideration - current	531		2,884
Deferred and contingent consideration - non-current	417		1,008
At 30 November	948		3,892

13. Contingent liabilities

At 30 November 2019, the Group had the following advanced payment bonds (relating to monies received in advance on contracts) and performance bonds:

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

			$'000		€'000
Advanced payment bonds			2,360		-
Performance bonds			7,476		-
At 30 November 2018			9,836		-

$8,478,000 (2018: $7,476,000) of the performance bonds relate to the contracts for filtration systems provided for gasification projects. These projects are being commissioned, a process which is taking several years. The Group has provided its best estimate of the amount of any potential loss arising from rectification and claims arising on these contracts within the £9.5 million warranty provisions disclosed in note 9. The maximum potential unprovided exposure under these contracts is limited to £11.5 million. In December 2019, a $930,000 performance bond was called by a customer, paid and cancelled. The uncalled performance bonds are expected to be called or released no later than March 2023.

14. Cash generated from operations

			2019 £'000		2018 £'000
Operating profit			14,787		12,868
Post-employment benefits			(1,003)		(136)
Fair value movement of derivatives through profit and loss			(52)		40
IFRS 15 adjustment			(88)		-
Share based payments			585		610
Depreciation, amortisation and impairment			3,743		3,607
Loss on disposal of property, plant and equipment and intangibles			122		-
Operating cash flows before movement in working capital			18,094		16,989
Increase in inventories			(2,351)		(2,494)
Increase in trade and other receivables			(707)		(1,570)
(Decrease)/increase in payables			(7,209)		3,216
Increase/(decrease) in provisions			8,931		(806)
Increase in working capital			(1,336)		(1,654)
Cash generated from operations			16,758		15,335

15. Basis of preparation

The results for the year ended 30 November 2019 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union as at 30 November 2019. 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 2019, 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 2018, upon which the auditors reported without qualification, have been delivered to the Registrar of Companies.

15. Basis of preparation continued

A. IFRS 15 Revenue from Contracts with Customers

The Group has adopted IFRS 15, 'Revenue from Contracts with Customers', for the year ended 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 has been recognised in the opening retained earnings.

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

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

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

The impact of adoption in the year ended 30 November 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 consolidated income statement and other comprehensive income in the year ended 30 November 2019

	As reported		Adjustments		Amount without adoption of IFRS15
	£'000		£'000		£'000
Revenue	144,932		3,965		148,897
Operating profit	14,787		(434)		14,353
Total comprehensive income	7,459		(151)		7,308

15. Basis of preparationcontinued

Impact on the consolidated balance sheet as at 30 November 2019

	As reported		Adjustments		Amount without adoption of IFRS15
	£'000		£'000		£'000
Non-current assets	97,699		-		97,699
Current assets	60,287		-		60,287
Current liabilities
Trade and other payables	(25,989)		(3,262)		(29,251)
Current tax liabilities	(564)		62		(502)
Provisions for other liabilities and charges	(9,526)		2,917		(6,609)
	(36,079)		(283)		(36,362)
Net current assets	24,208		(283)		23,925
Non-current liabilities	(26,572)		-		(26,572)
Net assets	95,335		(283)		95,052

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, principally in connection with accounting for bad debts, however the overall impact on the results for the year is not material. In accordance with the transitional provisions in IFRS 9, comparative figures have not been restated.

16. Annual general meeting

The Company's Annual General Meeting will be held at 11.00 a.m. on Tuesday 21 April 2020 at the offices of Buchanan, 107 Cheapside, London EC2V 6DN.

17. Related parties

There were no related party transactions in the year ended 30 November 2019 other than Directors' compensation.

18. Responsibility Statement

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

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

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

The Directors of Porvair are listed in the Porvair Annual Report for the year ended 30 November 2018, apart from Jasi Halai, who joined the Board on 18 June 2019. Paul Dean will retire from the Board on 3 February 2020. A list of current Directors is maintained on the Porvair website, www.porvair.com.

Copies of full accounts will be sent to shareholders in March 2020. Additional copies will be available from www.porvair.com.