Aerospace & Industrial
|
Laboratory
|
Metal Melt Quality
PORVAIR PLC
ANNUAL REPORT & ACCOUNTS 2023
Porvair plc Annual Report & Accounts 2023
Strategic report
IFC
In this report
Strategic report 01 to 51
01
Summary Group performance in 2023
02
Group overview
04
Consistent strategy, resilience and growth
06
Chair’s statement
08
Chief Executive’s report
10
Divisional performance
16
Finance Director’s review
20
Key performance indicators
22
Principal risks and uncertainties
26
Viability and going concern
28
ESG report
48
Section 172 Statement
Governance 52 to 82
52
Board of Directors
54
Chair’s introduction to governance
56
Directors’ report
59
Corporate governance
62
Report of the Nomination Committee
63
Report of the Audit Committee
65
Remuneration report
Financial statements 83 to 137
Group accounts
83
Independent Auditor’s report to the members of Porvair plc
89
Consolidated income statement
89
Consolidated statement of comprehensive income
90
Consolidated balance sheet
91
Consolidated cash flow statement
91
Reconciliation of net cash flow to movement in net cash/(debt)
92
Consolidated statement of changes in equity
93
Notes to the consolidated financial statements
Porvair plc Parent Company accounts
128
Parent Company – Balance sheet
129
Parent Company – Profit for the financial year
129
Parent Company – Statement of changes in equity
130
Parent Company – Notes to the financial statements
Other information 138 to 140
138
Shareholder information
139
Financial calendar 2024
140
Contact details and advisers
Strategic Purpose and ESG Commitment
Porvair’s strategic purpose is to develop specialist filtration, laboratory
and environmental technology businesses both organically and by
acquisition for the benefit of all stakeholders. Principal measures
of success at Porvair, on which management incentives are based, are
consistent earnings per share growth, and improvement in selected
ESG metrics.
AEROSPACE & INDUSTRIAL
LABORATORY
METAL MELT QUALITY
Find out more about Porvair and its latest financial information, results,
presentations, reports and shareholder services or view and download pdf
versions of the 2023 Annual Report and ESG Report:
Annual
Report
2023
ESG
Report
2023
Reporting suite of documents
Porvair is well positioned to play its part in the drive
towards a sustainable future. We aim to develop our
businesses for the benefit of all our stakeholders.
Summary Group performance in 2023
Porvair plc Annual Report & Accounts 2023
Strategic report
Adjusted profit before tax* (£m)
£21.4m
Operating profit (£m)
£21.2m
Basic earnings per share (pence)
34.8p
Revenue (£m)
£176.0m
Adjusted operating profit* (£m)
£22.6m
Profit before tax (£m)
£20.1m
*See notes 2, 3 and 8 for definitions and reconciliations.
Chief Executive’s report
on pages: 8 to 15.
Financial summary
h
+2%
h
+8%
Net cash (£m)
£14.1m
Adjusted basic earnings per share* (pence)
37.2p
Total dividend (pence per share)
6.0
p
h
+12%
h
+7%
h
+10%
h
+7%
h
+10%
01
Group highlights
• Record operating profit and earnings per share.
• Demand in aerospace and petrochemical markets
recovered strongly.
• Ratiolab, EFC and certain business and assets of HRW acquired.
• Productivity investments driving margins.
ESG performance
• Improved our Employee Engagement activities and our
Voluntary Quit Rate metric.
• Continued to reduce our carbon intensity.
• Good health and safety performance and low accident rate.
CAGR* track record
The Group’s record for growth, cash generation and investment is:
5 years
10 years
15 years
CAGR*
CAGR*
CAGR*
Revenue growth
6%
8%
8%
Earnings per share growth
10%
11%
11%
Adjusted earnings per share growth
1 0%
11%
12%
£m
£m
£m
Cash from operations
95.5
163.9
207.6
Investment in acquisitions and
capital expenditure
50.1
92.6
106.6
*Compound annual growth rate.
Porvair’s strategy and purpose have remained consistent for 19 years,
a period that now encompasses two recessions and a pandemic. This
longer-term growth record gives the Board confidence in the Group’s
capabilities and is the basis for capital allocation and planning decisions.
2022
£172.6m
2023
£176.0m
2022
£18.7m
2023
£20.1m
2022
33.2p
2023
37.2p
2022
£19.8m
2023
£21.2m
2022
£19.4m
2023
£21.4m
2022
£18.3m
2023
£14.1m
2022
£20.5m
2023
£22.6m
2022
32.1p
2023
34.8p
2022
5.7p
2023
6.0p
The Group has three operating divisions
Porvair is a specialist filtration, laboratory and environmental
technology group.
Many of the products developed by Porvair are used to the
benefit of the environment and wider society and our operations
can make an important contribution to a cleaner and safer world.
49%
Americas
18%
Asia
21%
Continental Europe
11%
UK
1%
Africa
AEROSPACE & INDUSTRIAL
DIVISION
What we do
The Aerospace & Industrial division designs
and manufactures a broad range of specialist
filtration equipment for aerospace, energy,
and industrial applications. It has operations
in the UK, US, the Netherlands, Belgium and
India and its sales are global.
53%
USA
28%
UK
16%
Continental Europe
3%
China
LABORATORY
DIVISION
What we do
The Laboratory division designs and
manufactures instruments and consumables
for use in environmental and bioscience
laboratories with a particular focus on water
analysis instruments, diagnostics and sample
preparation equipment. It has operations
in the UK, US,Germany,Hungary, the
Netherlands and China and its sales
are global.
METAL MELT QUALITY
DIVISION
What we do
The Metal Melt Quality division designs
and manufactures porous ceramic filters
for the filtration of molten metals. It is
the world leader in the filtration of cast
house aluminium and superalloys. It has
operations in the US and China and its
sales are global.
Revenue by customer location
Revenue by manufacturing location
Our Group operations and global presence
Porvair plc Annual Report & Accounts 2023
Strategic report
02
Group overview
We have operating plants in
the UK, US, Germany, Hungary,
the Netherlands, Belgium, India
and China.
Our global manufacturing footprint
allows us to be flexible and resilient,
and deliver innovative solutions
to customers in all geographies.
USA
8 sites
UK
4 sites
EUR
7 sites
INDIA
1 site
CHINA
2 sites
Main operating companies
• Porvair Filtration Group
• Royal Dahlman
• European Filter Corporation
(“EFC”)
Main operating companies
• Seal Analytical
• Porvair Sciences
• Finneran
• Kbiosystems
• Ratiolab
Main operating companies
• Selee Corporation
• Selee China
38%
% of Group revenue 2023
35%
% of Group revenue 2023
£60.4m
2023 revenue
£48.0m
2023 revenue
£67.6m
2023 revenue
27%
% of Group revenue 2023
We focus on markets which have robust demand drivers;
product regulation or accreditation requirements; and need
specialist design and engineering skills.
Porvair plc Annual Report & Accounts 2023
Strategic report
03
Specialism
The Group is a leading specialist in the design and manufacture of
filtration components and assemblies for the aerospace industry.
Our components are designed specifically for particular airframes
and are specified on most of the world’s commercial airframes.
The Group provides a wide range of aerospace filters but has
strong positions in:
• Fuel tank inerting.
• Coolant systems for aircraſt control systems.
• Fuel line and hydraulic filters.
AEROSPACE
|
MARKET
LABORATORY
|
MARKET
Specialism
The Group designs and manufactures a range of equipment for use
in laboratories. Seal Analytical is a global leader in the manufacture
of laboratory based instruments and robotics for clean water analysis.
Porvair Sciences produces a broad range of microplates, filters, tubing,
pipette tips, and associated consumables used in diagnostics, sample
preparation and chromatography applications.
The Group has expertise in:
• Clean water analysis.
• Laboratory robotics.
• Sample preparation, filtration, and separation.
• The filtration of genetic material.
• Chromatography consumables.
INDUSTRIAL
|
MARKET
METAL MELT QUALITY
|
MARKET
Specialism
The Group provides filtration solutions for energy and industrial process
applications. Our filters are to be found in many of the harshest industrial
environments.
The Group has expertise in:
• Hot gas and gasification filtration.
• Pulse jet filtration systems.
• Nuclear containment filtration.
• FCC slurry oil filtration.
• Microelectronics manufacturing filtration.
Specialism
The Group’s Metal Melt Quality division specialises in the design and
manufacture of ceramic filters for molten metal. The Group provides
patent protected filters for: the aluminium cast house industry; the filtration
of gray and ductile iron; and the filtration of superalloys used in the
manufacture of turbine blades.
The Group has expertise in:
• The global market for cast house aluminium filters, particularly high
magnesium alloys.
• The North American market for gray and ductile iron filters, mainly used
in the manufacture of engine blocks and gearbox housings.
• Bespoke 3D printed ceramic filters used in the global market for
aerospace and industrial gas turbine exotic alloy turbine blades.
Porvair plc Annual Report & Accounts 2023
Strategic report
04
Consistent strategy, resilience and growth
We have a consistent strategy and business model with a long
track record of growth, cash generation and investment.
We focus on markets with long-term
growth potential.
We focus on three operating segments:
Aerospace & Industrial; Laboratory; and
Metal Melt Quality. All have clear long-term
growth drivers; We operate in attractive
niche markets and, where we can, maintain
barriers to entry through our specialist
design and engineering skills, patent
protection and quality accreditation.
Well positioned to benefit from
global trends
• Tightening environmental regulation.
• Growth in analytical science.
• The need for clean water.
• The development of carbon-efficient
transportation.
• The replacement of plastic and steel
by aluminium.
• The drive for manufacturing process quality
and efficiency.
We make new product
development a core business
activity.
Through a focus on new product
development, we aim to generate growth
rates in excess of the market. Where
possible, we build intellectual property
around our product developments.
Robust intellectual property
• Most individual filtration products and
technical laboratory consumables
require process qualification.
• All aviation filters have design
accreditation.
We look for applications where
product use is mandated and
replacement demand is regular.
Our products typically reduce emissions or
protect complex downstream systems and,
as a result, are replaced regularly. A high
proportion of our annual revenue is from
repeat orders.
Repeat orders
• Aviation filters are replaced as part
of regular maintenance checks.
• Metal melt filters are replaced aſter
each use.
• Sample preparation filters used in analytical
sciences are replaced aſter each use.
Strong relationships
• We have close long-term relationships
with customers, suppliers and other
stakeholders, centred on trust and
collaboration.
• Our people deliver our success and a
diverse and inclusive culture supports
performance and growth.
Divisional performance
on pages: 10 to 15.
Key global growth trends offer
opportunities for Porvair
• Tightening environmental regulation
• Growth in analytical science
• The need for clean water
• The development of carbon-efficient
transportation
•
The replacement of plastic and
steel by aluminium
•
The drive for manufacturing process
quality and efficiency
Porvair plc Annual Report & Accounts 2023
Strategic report
05
Increasing demand for our products and solutions is driven by
established global growth trends, strong customer relationships,
technical excellence and the move towards a sustainable future.
We establish geographic presence
where end-markets require.
Our geographic presence follows the
markets we serve. In the last twelve months:
49% of revenue was in the Americas; 18% in
Asia; 21% in Continental Europe; 11% in the
UK; and 1% in Africa. The Group has plants
in the UK, US, Germany, Hungary, the
Netherlands, Belgium, India and China.
In the last twelve months: 53% of revenue
was manufactured in the US; 28% in the UK;
16% in Continental Europe; and 3% in China.
Geography
• Most aviation engineering is carried out
in the US and EU, with China and Brazil
also active.
• Water cleanliness regulation is growing
throughout the world.
• Most higher grades of aluminium are
smelted in the US, Middle East and China.
Regional dynamics in 2023
16%
In 2023, 16% (2022: 13%) of Group
manufacturing revenue is manufactured in
Continental Europe, an increase reflecting
the acquisition of Ratiolab in July 2023.
We invest in both organic and
acquired growth.
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, India and China and made
several acquisitions expanding our footprint
into the Netherlands, Belgium and Hungary.
All investments are subject to a hurdle rate
analysis based on strategic and financial
priorities.
Key developments
• Over the last five years the Group
has delivered £95.5 million in cash from
operations and invested £50.1 million in
capital expenditure and acquisitions.
• In 2023 the Group generated £24.1 million
in cash from operations and invested £18.7
million in capital expenditure and
acquisitions.
Cash generated from operations
£24.1m
Capital expenditure and acquisitions
£18.7m
We are a responsible and
sustainable business.
From clean water analysis to lightweight
sustainable metals; from reducing marine
pollution to filtration in energy and industrial
process; Porvair’s capabilities help to
address key environmental challenges
for our customers.
ESG is at the heart of who we are
and what we do
Porvair contributes to a sustainable future
through the products we make; the way
we operate; and how we engage with
our employees.
Carbon intensity reduction
23%
Having reduced our carbon intensity by 22%
between 2020 and 2022, we set a target to
reduce our carbon intensity by a further 10%
between 2022 and 2025. In 2023 we
reduced our intensity by a further 1%.
Gender diversity
33%
We are committed to developing a diverse
and inclusive workplace. 33% of the Group’s
permanent workforce are female.
Engagement and decision-making
s172
Open, regular and transparent engagement
with stakeholders is integral to decision-
making and to the way we do business and
ensures we continue to operate in a balanced
and responsible
way.
ESG report
on pages: 28 to 47.
Introduction
Porvair’s strategic purpose is the development
of specialist filtration, laboratory and
environmental technology businesses for the
benefit of all stakeholders. Principal measures
of success include consistent earnings growth
and selected ESG metrics as set out in the
Group’s ESG report on pages 28 to 47.
The Group is positioned to benefit from
global trends: tightening environmental
regulation; growth in analytical science;
the need for clean water; the development
of carbon-efficient transportation; the
replacement of plastic and steel by aluminium;
and the drive for manufacturing process
quality and efficiency.
2023 was another year of record profits for
the Group and another year when these have
been achieved despite variable trading
patterns across markets served. Porvair’s
devolved management structure is helpful
in such trading conditions, enabling key
commercial decisions to be made close
to the customer.
Our long-term growth record, 8% p.a.
revenue growth and 12% p.a. adjusted
earnings per share growth over a 15 year
period, gives the Board confidence in the
Group’s capabilities and is the basis for capital
allocation and planning decisions.
Results
Revenue in the year to 30 November 2023
was 2% higher at £176.0 million (2022:
£172.6 million). Operating profit was 7%
higher at £21.2 million (2022: £19.8 million)
and adjusted operating profit was 10% higher
at £22.6 million (2022: £20.5 million). Basic
earnings per share were 34.8 pence (2022:
32.1 pence) and adjusted earnings per share
were 37.2 pence (2022: 33.2 pence). At 30
November 2023 the Group had net cash
of £14.1 million (2022: £18.3 million) after
investing £18.7 million (2022: £5.9 million)
in capital expenditure and acquisitions.
Key Board decisions
The principal decisions taken by the Board
in 2023 were those of a strategic nature that
are significant to any of our key stakeholder
groups. In 2023 these were: decisions to
acquire three businesses, Ratiolab, European
Filter Corporation, and certain business and
assets of HRW to expand the capabilities of
the Aerospace & Industrial division and the
Laboratory division; the decision to pay the
interim dividend and recommend the final
dividend for 2023; and approval of the Porvair
strategic plan for 2024 to 2027. These are
described in full on page 50.
Trading outlook
After a record 2023, the Board is optimistic
for 2024 and beyond. There is much to look
forward to as the year unfolds: opportunities
afforded by acquisitions; strong order books
in aerospace and petrochemical; demand
recovery in Laboratory; and new products
in Seal Analytical and elsewhere. In the first
half of 2024 these should offset near-term
headwinds of adverse foreign exchange and
de-stocking in US industrial consumables,
which seems to have a few more months to
run. The Group’s fundamental demand drivers
have not changed. Porvair remains well
positioned to take advantage of tightening
environmental regulation; the growth of
analytical science; the need for clean water;
the development of carbon-efficient
transportation; the replacement of plastic
and steel by aluminium; and the drive for
manufacturing process quality and efficiency.
It is these trends that drive the Group’s
consistent longer-term trading record and
enables the Board to look ahead with
confidence.
Porvair plc Annual Report & Accounts 2023
Strategic report
06
Chair’s statement
Net cash
£14.1m
Net cash was £14.1 million (2022: £18.3
million) after investing £18.7 million (2022:
£5.9 million) in capital expenditure and
acquisitions.
Dividend
6.0p
The dividend increased to 6.0 pence
per share (2022: 5.7 pence).
Progressive dividend policy
4.0p
The Board re-affirms its progressive dividend
policy and recommends a final dividend
of 4.0 pence per share.
A year of record profit.
The Group’s fundamental
demand drivers have not
changed. It is these trends
that drive the Group’s
consistent longer-term
trading record and enables
the Board to look ahead
with confidence.
John Nicholas,
Chair
Dividends
The Board re-affirms its progressive dividend
policy and recommends a final dividend of
4.0 pence per share, at a value of £1.8 million
(2022: 3.8 pence per share, at a value of £1.7
million). The full year dividend increases by
5.3% to 6.0 pence per share, a value of £2.8
million (2022: 5.7 pence per share, a value of
£2.6 million). The Company had £45.5 million
(2022: £36.5 million) of distributable reserves
at 30 November 2023.
Board changes
The Board comprises a Chair, two Executive
Directors, and three other Independent Non-
Executive Directors. Ami Sharma joined the
Board on 1 January 2023 and became Chair
of the Audit Committee following Jasi Halai’s
resignation on 31 January 2023. On 26 June
2023 Sarah Vawda joined the Board. On
page 52 the Group discloses the ethnic
diversity of its Directors and Executive
management for the first time.
Staff
In a year of inconsistent trading, it is our staff
that are the most crucial. 2023 was not
straightforward with de-stocking and falling
lead times complicating manufacturing
operations. The staff across our 22 facilities
have coped well and the Board salutes their
resourcefulness and perseverance. Porvair
believes in devolving management autonomy
as far as possible, and our management teams
are remunerated in part by how well they
execute the Employee Engagement framework
set out by the Board. The Board is very grateful
for the hard work, enthusiasm and dedication
of all our staff.
Governance
The Board sets high standards for its
corporate governance. The Group has a clear
purpose and demonstrates strong ethical
behaviour within a framework of transparent
and robust governance. It has in place
monitoring systems to ensure that standards
are upheld throughout the Group. The Board
complied with all aspects of the 2018 UK
Corporate Governance code throughout
the year ended 30 November 2023.
In 2023, Employee Engagement processes
were refined throughout the Group with the
benefit of several years of tracking employee
satisfaction and measuring the Voluntary Quit
Rate. Improvements in Employee Engagement
now form part of all general managers’
incentive schemes.
Stakeholder engagement
Open, regular and transparent engagement
with all our stakeholders is fundamental to the
way we do business and ensures we operate
in a balanced and responsible way. I would
like to thank all our stakeholders for their
continued support for the Group.
John Nicholas,
Chair
2 February 2024
Porvair plc Annual Report & Accounts 2023
Strategic report
07
Strong ESG performance continues to support
the move towards a sustainable future.
Governance
on pages: 46 and 59 to 61.
Stakeholder engagement
on page:47.
Stakeholders and Sustainability
We believe that strong ESG performance
can be a source of competitive advantage.
Our ESG framework helps us to set targets
and commitments, drive progress, and
enhance transparency.
Strong and effective governance and
ethical practice are an essential
underpinning of all our operations.
The Board actively engages with our
shareholders, employees and wider
stakeholder groups when making
decisions, and considers the impact
of Group activities on the community,
environment and its reputation.
The Board is responsible and accountable
for the delivery of our strategy and ensuring
we sustain our ESG commitments over
the long-term for the benefit of all our
stakeholders.
Porvair plc Annual Report & Accounts 2023
Strategic report
08
Chief Executive’s report
Operating review
2023 was another year of record profits for
the Group and another year when these have
been achieved, despite variable trading
patterns across markets served.
Demand in aerospace and petrochemical
markets recovered strongly from post-
pandemic lows. Water quality demand
remained steady. Order books for industrial
and laboratory consumables started the year
strongly but declined from the second quarter
as customers unwound inventory positions
built up in 2022 and early 2023. By the end
of the year, manufacturing lead times had
mostly returned to more normal levels.
The Group navigated these inconsistent
conditions satisfactorily. Productivity
investments made in prior years helped
support margins, as did careful management
of input costs and pricing. As a result, while
reported revenues were up 2%, adjusted
operating profit was up 10%, a level of
earnings growth consistent with the Group’s
five, ten and fifteen year performance. Strong
cash generation meant that the year finished
with £14.1 million of net cash on the balance
sheet after spending around £24 million on
acquisitions, capital expenditure, dividends
and pension costs.
Porvair’s devolved management structure is
helpful in such trading conditions, enabling
key commercial decisions to be made close
to the customer. Annual objectives for general
managers were again to deliver earnings
growth, cash generation and selected ESG
metrics. Details of our ESG programme are
in our ESG report on pages 28 to 47.
While trading patterns across the Group
in 2023 were variable, a degree of
inconsistency is not unusual. It is rare that
all parts of the Group perform as planned.
We serve a range of markets in different parts
of the world and trading can be affected
by both local and global events. However,
Porvair benefits from underlying growth trends
that have not changed in 2023: tightening
environmental regulation; the growth of
analytical science; the need for clean water;
the development of carbon-efficient
transportation; the replacement of plastic
and steel by aluminium; and the drive for
manufacturing process quality and efficiency.
Financial results
2023
2022
Growth
£m
£m
%
Revenue
176.0
172.6
2
Operating profit
21.2
19.8
7
Adjusted operating profit*
22.6
20.5
10
Profit before tax
20.1
18.7
7
Adjusted profit before tax*
21.4
19.4
10
Pence
Pence
Earnings per share
34.8
32.1
8
Adjusted earnings
per share*
37.2
33.2
12
£m
£m
Cash generated from
operations
24.1
22.8
Net cash (excluding
lease liabilities)
14.1
18.3
*See notes 2, 3 and 8 for definitions and reconciliations.
Revenue increased by 2% to £176.0 million.
Profit before tax increased by 7%. Adjusted
profit before tax grew by 10% and adjusted
earnings per share by 12%.
Revenue
£176.0m
Revenue up 2% to £176.0 million
(2022: £172.6 million).
Investment in acquisitions and capital
expenditure
£18.7m
£18.7 million (2022: £5.9 million) invested
in acquisitions and capital expenditure.
Our devolved management
structure is helpful in variable
trading conditions.
Ben Stocks,
Chief Executive
Porvair benefits from underlying growth trends
that have not changed in 2023.
Divisional performance
on pages: 10 to 15.
ESG report
on pages: 28 to 47.
Porvair plc Annual Report & Accounts 2023
Strategic report
09
Strategy and purpose
Porvair’s strategy and purpose have remained
consistent for 19 years, a period that now
encompasses two recessions and a pandemic.
The Group’s record for growth, cash
generation and investment is:
This longer-term growth record gives the
Board confidence in the Group’s capabilities
and is the basis for capital allocation and
planning decisions.
Strategic statement and business model
Porvair’s strategic purpose is the development
of specialist filtration, laboratory and
environmental technology businesses for the
of success include consistent earnings growth
and selected ESG metrics as set out in the
Group’s ESG report.
The Group is positioned to benefit from global
trends: tightening environmental regulation;
growth in analytical science; the need for clean
water; the development of carbon-efficient
transportation; the replacement of plastic
and steel by aluminium; and the drive for
manufacturing process quality and efficiency.
Porvair businesses have certain key
characteristics in common:
•
specialist design, engineering or
commercial skills are required;
•
product use and replacement is mandated
by regulation, quality accreditation or a
maintenance cycle; and
•
products are typically designed into a
system that will have a long life-cycle and
must perform to a given specification.
Orders are won by offering the best technical
solutions or commercial service at an
acceptable cost. Technical expertise is
necessary in all markets served. New products
are often adaptations of existing designs
with attributes validated in our own test and
measurement laboratories. Experience in
specific markets and applications is valuable
in building customer confidence. Domain
knowledge is important, as is deciding where
to direct resources.
This leads the Group to:
1.
Focus on markets with long-term
growth potential;
2.
Look for applications where product
use is mandated and replacement
demand is regular;
3.
Make new product development a core
business activity;
4.
Establish geographic presence where
end-markets require; and
5.
Invest in both organic and acquired
growth.
Environmental, Social and Governance
(“ESG”)
The Board understands that responsible
business development is essential for creating
long-term value for stakeholders. Most of the
products made by Porvair are used to the
benefit of the environment. Our water analysis
equipment measures contamination levels
in water. Industrial filters are typically needed
to reduce emissions or improve efficiency.
Aerospace filters improve safety and reliability.
Nuclear filters confine fissile materials. Metal
Melt Quality filters reduce waste and help
improve the strength to weight ratio of metal
components.
A full ESG report is published within this
Annual Report, setting out:
•
Porvair’s ESG management framework,
goals and TCFD reporting;
•
how climate change and a Net Zero
carbon future might affect markets served
by the Group;
•
ESG metrics and results; and
•
how the Group has acted for the benefit
of its stakeholders in 2023.
5 years
10 years
15 years
CAGR*
CAGR*
CAGR*
Revenue growth
6%
8%
8%
Earnings per share growth
10%
11%
1 1%
Adjusted earnings per
share growth
10%
11%
1 2%
£m
£m
£m
Cash from operations
95.5
163.9
207.6
Investment in acquisitions
and capital expenditure
50.1
92.6
106.6
*Compound annual growth rate.
• Place an emphasis on skills development,
talent and training in a devolved
management structure.
• Support new product development.
• Acquire suitable bolt-on assets as
appropriate.
• Allocate capital to higher growth
segments; efficiency enhancements; and
capacity increases.
• Meet our ESG targets.
Our strategic priorities
We maintain a conservative balance
sheet and focus on strong cash
generation, to provide the resources
to deliver on our strategic priorities for
long-term growth.
Focused strategy driving consistent growth
and margin expansion.
Porvair plc Annual Report & Accounts 2023
Strategic report
10
Chief Executive’s report
continued
Custom engineered solutions
The fuel tank inerting filters used on most
Boeing and Airbus passenger aircraſt
continue to be upgraded and improved.
Component parts have been redesigned to
improve performance and ensure reliability
in the supply chain. A new 3 stage filter
assembly has been qualified for the Airbus
single Aisle XLR programme which is
scheduled for EASA certification in 2024.
Fuel tank
inerting
Fuel line and
hydraulic
filters
Stronger demand is supporting
aerospace recovery and growth
+95.7%
With the demand for air travel returning,
passenger traffic continues to recover,
demonstrating the vital role air travel plays
in connecting people and driving
international trade. Global air traffic reached
95.7% of pre-Covid levels in August 2023,
with revenue passenger kilometres (RPK)
increasing by 28.4% when compared
to August 2022.
Source: IATA
Aircraft
control
coolant
systems
The Aerospace & Industrial division designs and manufactures a
wide range of specialist filtration products, demand for which is
driven by customers seeking better engineered, cleaner, safer
or more efficient operations.
Principal markets
• Aerospace
• General Industrial
• Energy
• Petrochemical
AEROSPACE & INDUSTRIAL
Divisional performance
Performance in 2023
The Aerospace & Industrial division designs
and manufactures a wide range of specialist
filtration products, demand for which is driven
by customers seeking better engineered,
cleaner, safer or more efficient operations.
Differentiation is achieved through design
engineering; the development of intellectual
property; quality accreditations; and
customer service.
Revenue in the year grew by 4%. Aerospace
and petrochemical markets were up around
20%, offsetting the de-stocking effects in
wider industrial markets. Tightening emissions
regulations in the petrochemical market led
to strong project demand, notably in India.
Passenger air miles returned to pre-pandemic
levels. Adjusted operating profits rose 36%.
Adjusted operating margins increased to
14.5% (2022: 11.1%), the result of better
manufacturing efficiencies from stronger
aerospace demand; close management of
margins; productivity investments made in
prior years; and the partial resolution of
contractual obligations from prior years.
One acquisition was made during the
year and one in December 2023. Our
microelectronic filtration facility in Boise
expanded its manufacturing capability with
the acquisition of certain business and assets
of HRW Inc. Integration has gone well and
the larger entity was better able to navigate
a difficult year for semi-conductor volumes.
This has always been a volatile market and is
expected to recover in 2024. We completed
the acquisition of the European Filter
Corporation (“EFC”) in the first trading week
of the new financial year. EFC has expertise
in the manufacture of mist elimination filters
which are used in the production of industrial
feedstocks. It also has well established
industrial filtration sales channels in north east
Europe and we expect to find opportunities
for both cross sales and cross manufacture.
2023
2022
Growth
£m
£m
%
Revenue
67.6
64.7
4
Operating profit
9.3
6.8
37
Adjusted operating profit*
9.8
7.2
36
*See notes 2 and 3 for definitions and reconciliations.
Porvair plc Annual Report & Accounts 2023
Strategic report
11
Financial performance 2023
Performance summary
•
Adjusted operating profit up 36%
•
Aerospace and petrochemical revenue
up 20%
•
Adjusted operating margins 14.5%
•
Business and assets of HRW acquired
•
EFC acquired in December 2023
Adjusted operating profit* (£m)
Revenue (£m)
10
8
6
4
2
0
2020
£9.8m
(2022: £7.2m)
£67.6m
(2022: £64.7m)
2021
70
60
50
40
30
20
10
0
2020
6.3
2022
4.4
7.2
2023
9.8
62.0
2021
55.8
2022
64.7
2023
67.6
*See notes 2 and 3 for definitions and reconciliations.
Strong performance at Royal Dahlman
Dahlman’s engineering project design and
delivery business, our UK based filter candle
making capability and our engineering
operations in India, combined in 2023 to
win several FCC slurry oil systems in the
Indian market.
Investment in capacity and enhanced production
capabilities is improving operational efficiency and
driving margins.
The Laboratory division designs and manufactures instruments and
consumables for use in environmental and bioscience laboratories,
with a particular focus on water analysis instruments, diagnostics
and sample preparation equipment.
Principal markets
• Environmental laboratories
• Sample preparation
• Chromatography
• Instruments and consumables
Porvair plc Annual Report & Accounts 2023
Strategic report
12
Chief Executive’s report
continued
Innovation and consistent new product
development for environmental
laboratories
Building on the success of the AQ700 high
throughput discrete analyser launched in
2022, Seal has developed a semi-volatile
sample preparation robot on the same
platform, for use by the same large
environmental laboratories.
LABORATORY
Divisional performance
Tightening regulation and the
need for clean water drives
increasing demand
+40%
The market for clean water and environmental
testing is growing throughout the world as
more of the world’s population seeks
access to clean water and environmental
regulations tighten. Global freshwater
demand is predicted to exceed supply
by 40% by 2030.
Source: UN
AQ700
automation
Modular
AA500
Robotic
samplers
Porvair plc Annual Report & Accounts 2023
Strategic report
13
Performance in 2023
The Laboratory division has two operating
businesses: Porvair Sciences (including
Finneran, Kbiosystems and from July 2023,
Ratiolab) and Seal Analytical.
•
Porvair Sciences manufactures laboratory
filters, small instruments and associated
consumables, for which demand is driven by
sample preparation in analytical laboratories.
Differentiation is achieved through proprietary
manufacturing capabilities, control of
filtration media, and customer service.
•
Seal Analytical supplies instruments and
consumables to environmental laboratories,
for which demand is driven by water quality
regulations. Differentiation is achieved
through consistent new product development
focused on improving detection limits, and
improving laboratory automation.
As with the wider Group, the Laboratory
division experienced some inconsistency in
demand in 2023. Reported revenues fell 4%
and adjusted operating profits by 11%. Within
this, Seal Analytical had another strong year,
showing both sales and profit growth; but
Porvair Sciences, which mainly manufacturers
laboratory consumables, suffered from
significant market de-stocking. Across the
laboratory supply industry, inventory levels –
artificially high through the supply disruptions
of 2022 – rebalanced. As a result, lead times
fell through the year: at Finneran for example,
a 14 -16 week lead time at the start of 2023
had returned to 2-4 weeks by November
2023 – a more usual level. These changing
order patterns affected profits but were offset
to a degree by careful cost management.
Staff numbers in Porvair Sciences were
reduced by 8% through the year. Adjusted
operating margins across the division were
15.2% (2022: 16.4%). The Board does not
see any change in the fundamental growth
drivers in these markets. Indeed, Seal
Analytical’s success in 2023 was buoyed
by new products specifically designed
to address laboratory consolidation and
automation; high sample throughput; and
more accurate detection limits.
In July, the Group acquired Ratiolab which
makes and sells a range of laboratory
consumables. Based in Germany and
Hungary, Ratiolab offers complementary
products and new routes to market. It also
adds European manufacturing and tool
making expertise. We expect to find benefits
in both cross manufacturing and cross selling.
Integration is well underway and we should
see the benefits of the acquisition in 2024.
Performance summary
•
Revenue down 4%
•
Adjusted operating profit down 11%
•
Strong year for Seal Analytical
•
Ratiolab acquired
Adjusted operating profit* (£m)
Revenue (£m)
£9.2m
(2022: £10.3m)
£60.4m
(2022: £62.7m)
2020
2021
2022
2020
2021
2022
2023
2022
Growth
£m
£m
%
Revenue
60.4
62.7
(4)
Operating profit
8.8
10.0
(12)
Adjusted operating profit*
9.2
10.3
(11)
*See notes 2 and 3 for definitions and reconciliations.
12
10
8
6
4
2
0
70
60
50
40
30
20
10
0
9.6
6.7
10.3
2023
9.2
40.1
53.2
62.7
2023
60.4
Financial performance 2023
*See notes 2 and 3 for definitions and reconciliations.
Acquisition – Ratiolab adds European
manufacturing and distribution capabilities
Ratiolab brings manufacturing capabilities
and strong European distribution to the Group.
The Laboratory division now has a broad
product offering for chromatography, sample
preparation and environmental laboratories in
Europe and the US.
Ratiolab manufactures, fills and packs pipette tips using
a fully automated injection moulding press and robotic
handling system.
METAL MELT QUALITY
Divisional performance
The Metal Melt Quality division designs and
manufactures porous ceramic filters for the
filtration of molten metals. It is the world leader
in the filtration of cast house aluminium
and superalloys.
Principal markets
• Global Aluminium
• US Foundry
• Superalloys
Porvair plc Annual Report & Accounts 2023
Strategic report
14
Chief Executive’s report
continued
Strong and differentiated filtration to
meet unique filtration challenges
High magnesium alloys and lithium alloys
of aluminium increase the strength to
weight ratio of the metal, vital for lightweight
applications such as aerospace and electric
vehicle components. Porvair CS-X
TM
and
CS-T
TM
are the world leading products in the
technically difficult filtration of these alloys.
Global demand for aluminium driven
by its lightweight and recyclability
6%
p.a.
Aluminium demand, replacing steel and plastics, is expected to
grow by 6% p.a. up to 2030 from electric vehicle growth, the switch
to aluminium food and beverage packaging, growth in consumer
electronics and the drive to lighter weight aerospace components.
45
kg per vehicle
The aluminium content of cars and light trucks is expected to
increase by 45kg per vehicle between 2020 and 2030.
98%
recycled
98% of recycled aluminium cans are recycled again compared
with 60% for glass and 20% for plastic bottles.
Sources: European Aluminium, VISION 2050;
ESOMAR, Vantage Market Research; and
alucycle.international-aluminium.org
13
26.
9
8
AI
Ceramic
foam filters
Ceramic
foam filters
Lattice
®
filters
Matrix
®
filters
Porvair plc Annual Report & Accounts 2023
Strategic report
15
Performance in 2023
The Metal Melt Quality division manufactures
filters for molten aluminium, ductile iron and
nickel-cobalt alloys. It has a well-differentiated
product range based on patented products
and extensive experience in melt quality
assessment.
2023 was a record year with revenue up 6%
at an adjusted operating margin of 13.5%
(2022: 12.6%). Demand was robust in the first
half with all three plants running extra shiſts
for several months. The Chinese satellite plant
had a profitable and cash-generative year.
Some de-stocking became apparent in the
second half, notably in general industrial filters,
and lead times fell. Demand for aerospace
related filtration continues to grow and the
underlying position of the aluminium market
is promising. The division benefitted in 2023
from re-shoring of aluminium production back
to the US; growing demand for can stock as
beverage packaging moves away from plastic;
and the increased proportion of aluminium in
electric vehicles.
2023
2022
Growth
£m
£m
%
Revenue
48.0
45.2
6
Operating profit
6.5
5.7
14
Adjusted operating profit*
6.5
5.7
14
*See notes 2 and 3 for definitions and reconciliations.
Financial performance 2023
Performance summary
• Revenue at record levels up 6%
• Adjusted operating profit up 14%
Adjusted operating profit* (£m)
Revenue (£m)
£6.5m
(2022: £5.7m)
£48.0m
(2022: £45.2m)
2020
2021
2022
2020
2021
2022
8
6
4
2
0
50
40
30
20
10
0
2.8
5.1
5.7
2023
6.5
32.9
37.4
45.2
2023
48.0
*See notes 2 and 3 for definitions and reconciliations.
Metallurgical expertise and product
innovation
The Porvair metallurgical lab drives
improvements in our customers operations
through innovation of new products and
molten metal application troubleshooting
in cast house facilities.
Matrix
®
is an additive manufacturing process for
making engineered structures in high temperature
molten metal filtration.
Group results
2023
2022
Growth
£m
£m
%
Revenue
176.0
172.6
2
Operating profit
21.2
19.8
7
Profit before tax
20.1
18.7
7
Profit aſter tax
16.0
14.7
9
Revenue was 2% higher on a reported
currency basis and 1% higher at constant
currency (see note 2). Operating profit was
£21.2 million (2022: £19.8 million) and profit
before tax was £20.1 million (2022: £18.7
million). Profit after tax was £16.0 million
(2022: £14.7 million). An operating review,
together with a review of divisional
performance, is included in the Chief
Executive’s report above.
Alternative performance measures – profit
2023
2022
Growth
£m
£m
%
Adjusted operating profit
22.6
20.5
10
Adjusted profit before tax
21.4
19.4
10
Adjusted profit aſter tax
17.1
15.3
12
The Group presents alternative performance
measures to enable a better understanding of
its trading performance (see note 2). Adjusted
operating profit and adjusted profit before tax
exclude items that are considered significant
and where treatment as an adjusting item
provides a more consistent assessment of
the Group’s trading performance. Adjusting
items of £1.3 million (2022: £0.7 million)
comprise £0.9 million (2022: £0.7 million) for
the amortisation of acquired intangible assets
and £0.4 million (2022: £nil) for costs incurred
in relation to the acquisition of certain business
and assets from HRW Inc.; the 100% share
capital of Ratiolab, which completed in July
2023; and the 100% share capital of EFC,
which completed in December 2023. Details
of these adjusting items are included within
note 2.
Impact of exchange rate movements
on performance
The international nature of the Group’s
business means that relative movements
in exchange rates can affect reported
performance. The rates used for translating
the results of overseas operations were:
2023
2022
Average rate for translating
the results:
US $ denominated
operations
$1.24:£
$1.25:£
Euro denominated
operations
€1.15:£
€1.18:£
Closing rate for translating
the balance sheet:
US $ denominated
operations
$1.27:£
$1.19:£
Euro denominated
operations
€1.16:£
€1.16:£
During the year, the Group sold US$28.5
million (2022: US$25.0 million) at a net rate
of US$1.21:£1 (2022: US$1.29:£1) and
purchased €4.6 million (2022: sold €2.6
million) at a net rate of €1.15:£1 (2022:
€1.19:£1). At 30 November 2023, the Group
had US$10.0 million (2022: US$13.0 million)
and €nil (2022: €0.4 million) of outstanding
forward foreign exchange contracts; hedge
accounting has not been applied to these
contracts.
Porvair plc Annual Report & Accounts 2023
Strategic report
16
Finance Director’s review
Adjusted operating profit*
£22.6m
Adjusted operating profit* up 10% to
£22.6 million (2022: £20.5 million).
*See notes 2 and 3 for definitions and reconciliations.
Cash generated from operations
£24.1m
Cash generated from operations was
£24.1 million (2022: £22.8 million).
A strong balance sheet,
together with margin
improvement, has
underpinned our financial
performance.
James Mills,
Group Finance Director
Finance costs
Net finance costs comprise interest on
borrowings; lease liabilities; the Group’s
retirement benefit obligations; together with
the cost of unwinding discounts on provisions
and other payables. The Group also incurred
undrawn commitment fees on the Group’s
banking facilities, though these fees were
more than offset by interest income from
deposits. Net finance costs in the year
remained relatively flat at £1.2 million (2022:
£1.1 million). Interest cover from operating
profit was 18 times (2022: 18 times). Interest
cover from operating profit for bank finance
costs only was 65 times (2022: 57 times).
Tax
The total Group tax charge for the year was
£4.1 million (2022: £4.0 million), including
the tax effect of the adjusting items set out in
note 2. The adjusted tax charge was £4.3
million (2022: £4.2 million), with the effective
rate of income tax on adjusted profit before
tax at 20% (2022: 21%). The enacted increase
in UK Corporation Tax from 19% to 25%
effective April 2023 resulted in a blended rate
of 23% being initially applied on UK profits
within this financial year.
The Group has current tax provisions of
£0.6 million (2022: £0.3 million), which
includes £1.1 million (2022: £1.1 million) for
uncertainties relating to the interpretation
of tax legislation in the Group's operating
territories, offset by payments on account and
amounts recoverable for overpayments of tax.
The Group carries a deferred tax asset of
£0.4 million (2022: £1.0 million) and a
deferred tax liability of £3.6 million (2022:
£2.8 million). The deferred tax asset relates
principally to the retirement benefit obligations
and share-based payments. The deferred
tax liability relates to accelerated capital
allowances, acquired intangible assets arising
on consolidation and other timing differences.
Turnover (£m)
£176.0m
180
160
140
120
100
80
60
40
20
0
2019
2020
144.9
135.0
2021
2019
2020
2021
2022
2019
2020
2021
2022
2019
2020
2021
2022
146.3
2022
172.6
2023
176.0
Adjusted profit before tax* (£m)
£21.4m
Cash generated from operations (£m)
£24.1m
Dividend (pence per share)
6.0p
25
20
15
10
5
0
14.8
12.6
14.8
19.4
2023
21.4
*See notes 2 and 3 for definitions and reconciliations.
Porvair plc Annual Report & Accounts 2023
Strategic report
17
4.9
5.0
5.3
5.7
2023
6.0
6
5
4
3
2
1
0
25
20
15
10
5
0
16.8
13.2
18.6
22.8
2023
24.1
A resilient business model and
strong
cash generation
We
have a resilient, cash-generative
business
model and disciplined capital
allocation
framework that balances
investment
in the business and returns
to
shareholders in support of our
strategy
to achieve consistent growth.
Organic
investment
in selected
projects
Shareholder returns
through sustained earnings growth and
progressive dividend payments
Inorganic
investment
through
acquisitions
+
Balanced
with
£95.5m
Cash from operations in the last five years.
£18.7m
Capital expenditure and acquisitions in 2023.
Cash flow, cash and net debt
The table below summarises the key elements
of the cash flow for the year:
2023
2022
£m
£m
Operating cash flow before
working capital
29.1
26.9
Working capital movement
(2.8)
(2.7)
Post-employment benefits
(net cash movement)
(2.2)
(1.4)
Cash generated from operations
24.1
22.8
Interest
(0.3)
(0.4)
Tax
(3.0)
(4.1)
Capital expenditure
(4.8)
(4.9)
16.0
13.4
Acquisitions
(13.9)
(1.0)
Share issue proceeds
0.1
0.5
Purchase of Employee Benefit
Trust shares
(0.7)
(0.7)
Increase in borrowings
9.8
–
Decrease in borrowings
(9.8)
(5.0)
Dividends
(2.7)
(2.5)
Repayment of lease liabilities
(2.6)
(2.5)
(Decrease)/increase in cash
(3.8)
2.2
2023
2022
£m
£m
Net cash/(debt) reconciliation
Net cash/(debt) at 1 December
6.8
(2.0)
(Decrease)/increase in cash
(3.8)
2.2
Net movement in borrowings
–
5.0
(Increase)/decrease in lease liabilities
(2.1)
1.2
Exchange
(0.2)
0.4
Net cash at 30 November
0.7
6.8
Net cash
14.1
18.3
Lease liabilities
(13.4)
(11.5)
Net cash at 30 November
0.7
6.8
Generating free cash flow is central to the
Group’s business model. Cash generated
from operations was £24.1 million (2022:
£22.8 million), with net working capital
increasing by £2.8 million (2022: £2.7 million).
The Group started the year with net cash
(excluding lease liabilities) of £18.3 million and
finished the year with £14.1 million, having
invested £18.7 million (2022: £5.9 million)
in capital expenditure and acquisitions.
Bank borrowings at 30 November 2023 were
£nil (2022: £nil). As at 30 November 2023,
the Group had €27.8 million/£24.0 million
(2022: €27.7 million/£23.9 million) of unused
credit facilities and an unutilised £2.5 million
(2022: £2.5 million) net overdraft facility.
Capital expenditure
Capital expenditure on property, plant
and equipment was £4.8 million (2022:
£4.9 million), as the Group continued with
investment in capital projects with a particular
emphasis on automation, productivity and
capacity.
Acquisitions
On 3 March 2023, the Group acquired
certain business and assets from HRW Inc.
Total consideration was £0.9 million, of which
£0.2 million is deferred.
On 14 July 2023, the Group completed its
acquisition of 100% of the share capital of
Ratiolab GmbH and Ratiolab Kft. ("Ratiolab")
on a cash free, debt free basis and subject
to an agreed level of working capital.
Consideration was £8.1 million with acquired
net debt of £4.0 million being settled on
or shortly after acquisition.
Further details of the acquisitions made in the
year are disclosed in note 25.
On 25 February 2021, the Group acquired
100% of the share capital of Kbiosystems.
Contingent consideration paid in the year
ended 30 November 2023 was £1.1 million
(2022: £1.0 million). No further contingent
consideration is payable for Kbiosystems.
Events after the reporting date
Following the year-end, on 4 December 2023,
the Group acquired 100% of the share capital
of European Filter Corporation NV (“EFC”)
on a cash free, debt free basis and subject
to an agreed level of working capital. Initial
consideration was £10.3 million. Further
details are disclosed in note 26.
Provisions and contingent liabilities
The Group has £3.6 million (2022: £4.0
million) of provisions for dilapidations and
performance warranties. £1.5 million of
warranty provisions have been created for
sales made in the year, whilst £1.6 million of
warranty provisions have been released in
the year, following the latest estimate of the
expected costs to be incurred.
Total equity and distributable reserves
Total equity at 30 November 2023 was
£140.4 million (2022: £131.1 million), an
increase of 7% over the prior year. The net
increase in total equity includes profit after tax
of £16.0 million (2022: £14.7 million), a net
of tax actuarial gain of £0.2 million (2022:
£1.3 million), together with a £4.6 million
exchange loss (2022: £7.8 million gain) on
the retranslation of foreign subsidiaries.
The Company had £45.5 million (2022:
£36.5 million) of distributable reserves
at 30 November 2023. The Company’s
distributable reserves increased in the
year from dividends received from Group
companies, and decreased in the year from
head office costs and dividends paid to
shareholders.
Porvair plc Annual Report & Accounts 2023
Strategic report
18
Finance Director’s review
continued
The Group has US$nil (2022: US$1.0 million)
and €3.0 million (2022: €1.0 million) of
unexpired advanced payment and
performance bonds issued in the ordinary
course of business. The advanced payment
bonds are expected to expire no later than
October 2024 and the performance bonds
no later than July 2027.
Retirement benefit obligations
Retirement benefit obligations measured in
accordance with IAS 19 –
Employee Benefits
were £7.7 million (2022: £9.8 million). The
Group supports its defined benefit pension
scheme in the UK (“the Plan”), which is closed
to new entrants, and provides access to
defined contribution schemes for its other
employees. The Plan’s liabilities decreased
in the year to £30.8 million (2022: £34.1
million). The Plan’s assets also decreased
in the year to £23.3 million (2022: £24.5
million). Following a change in financial
assumptions, including an increase in the
discount rate, a net of tax actuarial gain of
£0.2 million (2022: gain of £1.3 million)
was recognised within the statement of
comprehensive income. Cash contributions
paid to the Plan were £2.6 million (2022:
£2.1 million), which included a deficit
recovery payment of £2.1 million (2022:
£1.6 million).
Finance and treasury policy
The treasury function at Porvair is managed
centrally, under Board supervision. It seeks
to limit the Group’s trading exposure to
currency movements. The Group does not
hedge against the impact of exchange rate
movements on the translation of profits and
losses of overseas operations. The Group
finances its operations through share capital,
retained profits and, when required, bank
debt. It has adequate facilities to finance its
current operations and capital plans for the
foreseeable future.
James Mills
Group Finance Director
2 February 2024
Principal risks and uncertainties
on pages: 22 to 25.
Viability and going concern
on pages: 26 and 27.
s172 statement
on pages: 48 to 50.
ESG report
on pages: 28 to 47.
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19
Organic investment and acquisitions
£18.7m
In considering its long-term development,
the Board will allocate capital and resources
according to strategic priorities.
These include:
• investments in research and development,
sales and marketing;
• capital expenditures to boost organic
growth and production capabilities; and
• acquisitions to increase product ranges,
technical expertise or routes to market.
The Group seeks to balance the short-term
costs of these investments with their likely
future benefit.
The Board made three acquisition decisions
in 2023 in support of its stated strategy of
developing specialist filtration, laboratory
and environmental technology businesses.
It acquired certain business and assets from
HRW in March 2023 as a bolt-on to the
industrial filtration unit in Boise, ID; Ratiolab
in July 2023 to expand the footprint of the
Laboratory division; and EFC, a Belgian
manufacturer and distributor for the
Aerospace & Industrial division, that
completed in December 2023.
REVENUE GROWTH
REVENUE GROWTH AT
CONSTANT CURRENCY
Definition
Revenue growth captures our year-on-year
performance in the main tenets of our
business model: meeting customer
requirements; developing new products;
expanding geographically; and making
acquisitions.
Constant currency revenue growth
presents a measure of growth from the
divisions in local functional currency.
Performance in 2023
The performance of the Group is explained in
full in the Chief Executive’s report and the
Finance Director’s review.
At constant currency, revenue growth within
Aerospace & Industrial was 4% (2022: 13%),
Laboratory a 4% reduction (2022: 14%
growth), and Metal Melt Quality 6% growth
(2022: 11%).
Performance
2%
Performance
1%
2021
8%
2022
18%
2023
2%
2019
10%
(7)%
2019
2020
(7)%
2020
13%
2021
2019
9%
2020
(15)%
2021
17%
2022
31%
2023
10%
Strategy and business model
on pages: 2 to 5 and 8 and 9.
Principal risks and uncertainties
on pages: 22 to 25.
Remuneration report
on pages: 65 to 82.
ESG report
on pages: 28 to 47.
2019
2021
7%
41%
2022
23%
2023
8%
2020
(22)%
2019
10%
2020
(15)%
2021
12%
2022
13%
2023
1%
17%
2022
32%
2023
12%
ADJUSTED OPERATING MARGIN
Definition
Operating margins, excluding adjusting
items (see note 2), demonstrate the
Group’s ability to turn revenue into profits.
Performance in 2023
The Group adjusted operating margin
increased to 12.8% (2022: 11.9%). Within the
divisions, adjusted operating margins were
14.5% in Aerospace & Industrial (2022: 11.1%),
15.2% in Laboratory (2022: 16.4%), and 13.5%
in Metal Melt Quality (2022: 12.6%).
Performance
13%
1
2
3
4
5
1
2
3
1
2
3
1
2
3
1
2
3
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20
2019
2020
2021
2022
11%
11%
10%
12%
2023
13%
ADJUSTED PROFIT BEFORE TAX
(PBT) GROWTH
Definition
Adjusted PBT growth, which excludes
adjusting items (see note 2), measures
profit growth before corporation tax.
Performance in 2023
The performance is described in full in the
Chief Executive’s report and the Finance
Director’s review. Revenue growth of 2% has
delivered 10% growth at an adjusted PBT level.
Productivity investments made in prior years
helped support margins, as did careful
management of input costs and pricing.
Performance
10%
BASIC EARNINGS PER SHARE
(EPS) GROWTH
Definition
Basic EPS growth gives a measure of the
Group’s ability to deliver consistent
earnings growth for its shareholders.
Performance in 2023
Basic EPS growth reflects the growth in PBT
(as described in the Adjusted profit before tax
growth metric), with a 21% effective rate of
corporation tax (2022: 21%).
Performance
8%
ADJUSTED BASIC EARNINGS PER SHARE
(EPS) GROWTH
Definition
Adjusted basic EPS growth, which
excludes adjusting items (see note 2),
gives a measure of the Group’s ability
to deliver consistent earnings growth
for its shareholders.
Performance in 2023
Adjusted basic EPS has grown ahead of
adjusted PBT, with a 20% effective rate of
corporation tax (2022: 21%).
Performance
12%
Key performance indicators
FINANCIAL KPIs
1
2
3
4
5
Alignment to strategic objective
Focus on markets where we see long-term
growth potential.
Look for applications where product use is
mandated and replacement demand is regular.
Make new product development a core
business activity.
Establish geographic presence where
end-markets require.
Invest in both organic and acquired growth.
LOST TIME ACCIDENTS PER 100
EMPLOYEES
VOLUNTARY QUIT RATE
Definition
The Voluntary Quit Rate measures the
number of resignations per plant as a
percentage of the average number of
employees in each plant. The Board uses
this metric on a plant by plant basis, in
conjunction with staff surveys as part of
its assessment of employee satisfaction.
Performance in 2023
The median plant Voluntary Quit Rate remains
in line with the prior year but the Voluntary Quit
Rate has fallen indicating that the plants with
the highest quit rates in the prior year have
improved this year. Improved Employee
Engagement processes are having an impact
on staff retention particularly on the plants
with the highest staff turnover.
9.0%
The Group Voluntary Quit Rate was 9.0%
(2022: 12.2%).
6.9%
The median plant had a Voluntary Quit Rate
of 6.9% (2022: 7.1%).
Non-financial KPIs
Non-financial KPIs seek to measure the
performance of important aspects of the
business that cannot be measured through
financial reporting. The Group reports on:
• The Voluntary Quit Rate of employees;
• Lost Time Accidents; and
• Greenhouse Gas Intensity.
Remuneration & Risk
Variable remuneration of the Executive Directors is based on adjusted EPS growth, cash
generation from operations and other non-financial metrics including ESG performance.
Senior management variable remuneration is based on cash generation from operations,
non-financial metrics including ESG performance and longer-term operating profit.
Further details on remuneration policies and the metrics used to determine them are
set out in the Remuneration report.
We recognise that the management of risk has a key role to play in the achievement
of our strategy and KPIs.
1
2
3
1
2
3
1
2
3
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21
CASH GENERATED FROM OPERATIONS
LESS NET INTEREST
Definition
Cash generated from operations less net
interest gives a measure of the cash
generating capabilities of underlying
operations.
Performance in 2023
The Group’s cash performance was strong
driven by a continued focus on working capital
management.
Performance
£23.8m
ADJUSTED POST TAX RETURN ON
CAPITAL EMPLOYED
Definition
Adjusted post tax return on capital
employed gives a measure of financial
return from all invested capital in the
business, excluding net cash. A return
higher than the Group’s weighted average
cost of capital is satisfactory.
Performance in 2023
The Group’s adjusted return on capital
employed of 15% (2022: 15%) remained flat
on prior year, with the capital invested in
acquisitions contributing for a part year
only (see note 2 for definitions).
Performance
15%
ADJUSTED POST TAX RETURN ON
OPERATING CAPITAL
Definition
Adjusted post tax return on operating
capital employed gives a measure of
financial return from invested capital in
the business, excluding goodwill arising
on acquisitions, the Group’s retirement
benefit obligations (net of deferred tax)
and net cash.
Performance in 2023
The Group’s adjusted return on operating
capital of 34% (2022: 36%) reduced on prior
year, with the capital invested in acquisitions
contributing for a part year only (see note 2
for definitions).
Performance
34%
36%
28%
31%
36%
DAYS LOST TO ACCIDENTS PER 100
EMPLOYEES
Performance
0.20
GREENHOUSE GAS TOTAL INTENSITY
RATIO
Definition
The total intensity ratio is measured in
kilogrammes of CO
2
per pound Sterling
of revenue.
Performance in 2023
Greenhouse gas emissions were 1% higher in
2023, but revenue was 2% higher resulting in
a 1% reduction in the intensity ratio.
Performance
0.107
Definition
Lost time accidents and days lost per
100 employees gives a measure of the
frequency and severity of accidents in
our plants.
Performance in 2023
There were only 2 lost time accidents in 2023
resulting in 2 days off each.
Performance
0.4
2019
£16.4m
2020
£12.9m
2021
£18.3m
2022
2019
2020
2021
2022
34%
2023
£22.4m
2023
£23.8m
2019
14%
2020
12%
2021
13%
2022
15%
2023
15%
2019
0.51
2020
1.30
2021
0.43
2022
2019
2020
2021
2022
2019
2020
2021
2022
0.10
2023
0.20
13
2
1.6
0.135
0.139
0.127
0.108
2023
0.107
NON-FINANCIAL KPIs
6.1
2023
0.4
Risk management framework
The Group has a well-established system of internal control and
risk management.
Risk appetite
The Board assesses its risk appetite annually and applies consideration
of risk in its business planning process.
Our approach to risk management
The Board has carried out an assessment of the principal risks facing the
Group, including those that would threaten its business model, future
performance, solvency or liquidity, and has implemented a risk
management process with specific steps scheduled throughout the
financial year. The process adopted by the Group is outlined below:
•
Key risks are identified by the management team of each operation
and discussed quarterly with the Group Chief Executive and Group
Finance Director.
•
A register of risks and mitigations is assessed, covering:
–
Board appetite for each category;
–
Existing and emerging risks; and
–
Mitigation actions in place or required.
•
Actions arising are incorporated into operating plans and budgets.
•
Internal audit peer reviews analyse the risk registers kept by each
business and ensure that:
–
The mitigation steps identified are in place; and
–
Any commitments made in the planning process have
been actioned.
Risk governance
The Board has overall responsibility for effective risk management
and has:
•
defined the Group’s risk appetite;
•
reviewed any identified failures, mistakes or oversights in risk
assessments;
•
considered the findings of the internal audit reviews in relation
to risk management; and
•
conducted a robust annual effectiveness review of the process.
Principal risks and uncertainties
The principal risks and uncertainties described are those which
individually or collectively might be expected to have the most significant
impact on the Group’s long-term performance and prospects.
GROUP PRINCIPAL RISKS
Revenue risks
A
–
Existing market risk
B
–
New products and markets risk
C
–
Large contracts risk
D
–
Competitive risk
Manufacturing and operational risks
E
–
Facilities and IT risk
F
–
Cyber-attack risk
Finance and management risks
G
–
Financing and liquidity risk
H
–
Foreign currency, interest rate, credit risk
Emerging risks
ER 1
– Pandemic risk
ER 2
– Regulation risk – tariffs
ER 3
– Environmental and climate-related risk
ER 4
– Supply chain disruption; input, cost and production risk
Risk assessment review
Risk assessment
Review
Group Executive
Audit Committee
Board
Identify
Review
Assess
Mitigating actions
Mitigated risk likelihood
Mitigated residual risk impact
Risk increasing
Risk staying the same
D
F
Risk reducing
ER1
ER4
ER2
ER3
Risk impact analysis
Risk trends
The ongoing review of the Group’s principal risks focuses on how these
risks may evolve. The chart below makes an estimate of the relative
likelihood and impact of the risks described and shows which are
considered to be increasing or decreasing in severity.
C
H
A
G
E
B
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Strategic report
22
Principal risks and uncertainties
EMERGING RISKS
ER 1 – PANDEMIC RISK
The Board is mindful of the potential for
further pandemics and Covid-19 continues
to affect staff and suppliers periodically.
Mitigation
The Board is tolerant of health risks and sees
them as inevitable in a global manufacturing
business. The Group’s end-markets and
operations are diverse, meaning the effects
of exogenous shocks such as Covid-19 are
often different in different parts of the Group,
varying in both timing and degree. The Group
complies with all national and local directives
in pandemic response, adjusting output,
operating disciplines and supply lines
according to need.
Change
ER 2 – REGULATION RISK –TARIFFS
Changes to trade terms can affect Group
competitiveness.
Mitigation
The Board is tolerant of most trade and tariff
risks and particularly monitors UK/US; UK/EU;
and UK/US/China trade relations. The Board
is intolerant of trading risk in parts of the world
where standards of legal and commercial
protection are inconsistent. The Group may
amend how and where it manufactures or
sells goods to minimise tariff impacts or avoid
trade barriers.
Change
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Strategic report
23
ER 3 – ENVIRONMENTAL AND
CLIMATE-RELATED RISK
Climate-related events, including extreme
weather, and a disorderly transition to a
low-carbon economy, have the potential
to adversely impact the Group's operations
and financial well-being.
Mitigation
The Board accepts that all Group sites face
certain risks from climate-related events (see
also Risk E – Facilities, below), noting that
Group sites are not located in high risk areas
for fires and floods. The Board is averse to
manufacturing processes that carry medium
to high pollution risk. Management monitors
relevant regulations to ensure environmental
compliance in its operations, for all of which
the Board has set targets for reducing
carbon intensity.
The Group has set out its latest review of how
a move to Net-Zero might affect Group markets
and operations in its latest ESG report, where
both risks and opportunities are outlined.
Change
ER 4 – SUPPLY CHAIN DISRUPTION; INPUT,
COST AND PRODUCTION RISK
The Group seeks stable and reliable supply
chains, production processes and commercial
environments. Any of these, from time to time,
may deteriorate or fluctuate, as a result of
global events.
Mitigation
The Board is tolerant of such risks and
recognises that they are a normal part of
operating internationally. It observes that
the end-markets served by the Group are
normally more stable than volatile. Specific
mitigations to reduce volatility further include
dual sourcing of key inputs, buffer stock of
key supplies; long-term supply contracts for
key inputs and/or customers; and regular
preventative maintenance of equipment.
The Group seeks to pass-on cost increases
wherever goods inflation cannot be avoided.
Change
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
Alignment to strategic objective
Focus on markets where we see long-term
growth potential.
Look for applications where product use is
mandated and replacement demand is regular.
Make new product development a core
business activity.
Establish geographic presence where
end-markets require.
Invest in both organic and acquired growth.
Change in level of risk:
No change to risk
Risk exposure reduced
Risk exposure increased
MANUFACTURING AND
OPERATIONAL RISKS
E – FACILITIES AND IT RISK
The Group has 22 operating plants, the
largest facility generating between 20% and
25% of the Group’s revenue.
The Group relies on IT systems for all its record
maintenance and is dependent upon good
bandwidth connections between its sites.
Mitigation
The Board accepts that all businesses carry
a small risk of catastrophic failure due to fire,
flood or similar. A periodic group-wide fire risk
assessment is carried out, the latest in 2022.
The Group maintains insurance of its
equipment and facilities and carries business
interruption insurance to cover loss of profits.
In addition, the Group has ISO 9001 and
other industry specific quality control systems
which reduce the risk that a disaster will occur.
The Group has resilient and distributed IT
systems and invests in new servers, software
and bandwidth to improve the resilience of
its systems. It has comprehensive IT disaster
recovery plans, which are periodically tested.
Change
F – CYBER-ATTACK RISK
The nature and scale of cyber risk is changing
and increasing in all businesses. Greater
system dependence and more sophisticated
attacks increase the businesses’ vulnerability.
Mitigation
The Board sees this as a growing risk that
requires investment and vigilance to mitigate.
The Group’s systems have been tested
against actual cyber-attacks with, to date,
only minimal consequences. The Group
has distributed systems such that a virus or
cyber-attack should be contained within one
operation. Periodic cyber risk reviews are
carried out, the most recent in 2022/23, and
best practice is shared across the divisions.
Change
Porvair plc Annual Report & Accounts 2023
Strategic report
24
Principal risks and uncertainties
continued
REVENUE RISKS
A – EXISTING MARKET RISK
The Group serves a range of specialist
filtration, laboratory and environmental
technology markets, all of which may suffer
economic downturn or instability.
Mitigation
The Board is tolerant of such risks and accepts
that business cycle fluctuations are inevitable.
The spread of Group activities has enabled
the Group overall to perform creditably in
recent downturns. Many of the Group’s
products are consumable and are essential
to the safe operation of customers’ systems
and processes, so whilst volumes can
be impacted by changes in economic
circumstances, sustained fluctuations for
other reasons are rare.
Change
B – NEW PRODUCTS AND MARKETS RISK
The Group aims to grow through new
product development, expansion into new
territories, and acquisitions, all of which can
create new risks.
Mitigation
The Board sees such risks as inevitable in a
growing international business and seeks to
manage and mitigate through the strategy
review process together with a careful
assessment of investments, all of which are
subject to internal hurdle rates, technical
assessments and levels of approval.
Change
C – LARGE CONTRACTS RISK
The Group on occasion supplies filtration
equipment to large industrial installations.
The frequency and scale of orders can
materially affect the results of the Group.
The Group has several long-term supply
agreements for filters and agreements with
key distributors for certain of its products.
Mitigation
The Board is averse to risks associated with
orders that are of disproportionate scale to
the rest of the business or the operation in
which they sit. Large order approval is a
‘Matter Reserved for the Board’ which will
assess risk on a case-by-case basis. Such
commercial deals have close senior
management involvement.
The Board seeks to maintain a relatively low
customer or supplier concentration in any
given operation.
Change
D – COMPETITIVE RISK
The Group operates in competitive global
markets.
Mitigation
The Board recognises that the Group’s future
depends on its continued competitiveness
and is tolerant of risks associated with
maintaining competitiveness. The Group
seeks to build its competitive advantage
through technical differentiation, product
quality and customer service, all of which are
reviewed regularly by management and in
reports to the Board.
Change
1
2
1
2
1
2
1
2
1
2
1
2
3
Porvair plc Annual Report & Accounts 2023
Strategic report
25
FINANCIAL RISKS
G – FINANCING AND LIQUIDITY RISK
The Group uses borrowings to finance
its operations.
Mitigation
The Board is tolerant of financial and liquidity
risk, seeking sufficient financial headroom for
expansion and investment. The Board has
indicated it is tolerant of a maximum level of
debt up to 1.5-2.0 times EBITDA, beyond
which it would be averse to further risk. The
Board notes that the Group has had low or
no net bank debt over the last five years.
Change
H – FOREIGN CURRENCY, INTEREST RATE,
CREDIT RISK
As an international business, the Group is
subject to risk in its use of currency (both
transactional and translational), interest rates
and credit.
Mitigation
The Board is tolerant of such risks provided
risk levels remain proportionate to overall
Group performance.
Foreign exchange risk
The Group is mainly exposed to GB£/US$
fluctuation. The UK operations generate US
dollar and Euro revenue, for which exposure is
managed through forward currency contracts
and periodic sales of US dollars and Euros.
The Group does not apply hedge accounting
to these transactions.
Interest rate cash flow risk
The Group has minimal interest-bearing
liabilities. In view of the low levels of Group
borrowing, the Group does not have any
interest rate hedging instruments.
Credit risk
The Group applies appropriate credit checks
on potential customers before sales are made.
Debtor finance is very rarely used. The Group
monitors the level of deposits held with
overseas banks and financial institutions and
repatriates cash as part of its treasury
management.
Change
1
2
3
5
1
2
3
4
5
Alignment to strategic objective
Focus on markets where we see long-term
growth potential.
Look for applications where product use is
mandated and replacement demand is regular.
Make new product development a core
business activity.
Establish geographic presence where
end-markets require.
Invest in both organic and acquired growth.
Change in level of risk:
No change to risk
Risk exposure reduced
Risk exposure increased
Selection of Viability period
The Group has significant revenue streams
of bespoke consumable parts that, as a result
of either quality accreditation or regulatory
requirements, are expected to continue for
many years. However, the Board considers
that a review of the Group’s plans over a three
year period is reasonable because:
•
the Group’s planning processes extend
over three years and provide the Board
with a reasonable timeframe over which
developments can be foreseen with
a degree of certainty;
•
its specific investment plans can be
reasonably foreseen and will be
implemented within the period covered;
•
there is a reasonable expectation that
changes to current market trends can be
anticipated over the period; and
•
to the extent that the Group has long-term
supply contracts with its key customers,
these usually have three year renewal
periods.
The Group has an annual Strategic Planning
process, which includes a strategic plan, a
detailed budget for 2024 and financial
projections covering a three year period.
The strategic planning process is integrated
with the risk management and reporting
processes, designed to produce consolidated
and operating unit level business objectives,
risk management plans and operating budgets.
The plans are reviewed each year by the
Board as part of its strategy review process.
Once approved by the Board, the plans are
adopted throughout the operations and
provide the basis for strategic decision-making
and objective setting. Progress towards
these objectives and financial performance
compared with plans are monitored by the
Board throughout the year.
In undertaking its strategic review in 2023,
the Board considered the prospects of the
Group over the one and three year periods to
30 November 2024 and 2026, respectively.
The one year planning period normally has a
greater level of certainty and is, therefore,
used to set detailed budgetary targets
throughout the Group – it is also used by the
Remuneration Committee to set targets for
annual incentives. The three year period
provides less certainty of outcome, but sets
out the medium-term objectives of the Group
and the investment plans and financial targets
associated with those objectives. It is also
used by the Remuneration Committee for
setting the performance targets for the long-
term incentive plans.
Scenarios
The Group has considered the principal risks
outlined on pages 22 to 25, together with
the potential impact of those risks which
might pose the greatest threat to the business
model, future performance and liquidity
over the assessment period.
Integration with the Group strategy and
business model
The Group’s strategy is set out on pages
2 to 5 and 8 and 9. The aspects of the
strategy that have the most impact on the
viability of the business are:
• the characteristics of specialist filtration,
laboratory and environmental
technology businesses.
Generally,
the products the Group designs and
manufactures are mandated by regulation,
quality accreditation or a maintenance
cycle. Our products are generally
protecting much more costly or complex
downstream systems. Products are often
designed for specific applications, which
typically have long life cycles, and have
regular replacement cycles. These
characteristics provide the business with
a degree of repeatability of orders and
a reasonable level of revenue security;
• our ability to apply our expertise to
a range of attractive niche markets.
Our customers require filtration and
emission control products that perform
to a given specification. Our filtration
expertise is applicable across all our
markets. We win business by applying
that expertise to offer the best technical
solution at an acceptable cost to a
particular application; and
• our approach to investment and growth.
We aim to meet our dividend and
investment needs from free cash flow and
modest borrowing. We aim for a mix of
organic and acquisition growth funded
from our own resources. Over the medium-
term the Group has demonstrated an ability
to generate free cash flow and integrate
modest acquisitions.
Porvair plc Annual Report & Accounts 2023
Strategic report
26
Viability and going concern
Climate-related scenarios
In assessing principal risks over the assessment
period, the Group has also considered
climate-related scenarios including taking
into account a possible 2
o
C rise in global
temperature. Demand for filtration solutions is
expected to remain whatever the impact of
climate change and management does not
consider any of its plants’ operations to be at
risk from changes in the climate. However,
reducing demand for the Group’s US foundry
activities has been identified as a climate-
related risk, given the Automotive sector’s
move towards Net Zero with more renewable
propulsion methods and the consequent
reduction in demand for internal combustion
engine components and castings. As
described below, this reduction would not
significantly impact the viability of the Group
over the assessment period. The Group does
not expect any other significant impacts on its
ability to operate as a result of climate-related
changes.
Stress tests
The three year viability period has been stress
tested with the following severe but plausible
combined downside scenarios:
•
a global event impacting Aerospace
revenues, such that demand in FY2024
and FY2025 reduces to the FY2021 run
rate, being the year following the Covid-19
outbreak (principal risks: Pandemic risk;
supply chain disruption; input, cost and
production);
•
a 25% decline in US foundry revenue as the
Automotive sector accelerates its Net Zero
activities (principal risk: Environmental and
climate-related);
•
demand reduction for Laboratory and
Industrial consumables, such that planned
revenues reduce by 25% in all three years
(principal risk: Existing market);
•
an eighteen month forced shutdown of the
Group’s largest production line requiring
lengthy remedial work over FY2024 and
FY2025 (principal risk: Facilities and IT);
and
•
an economic downturn impacting
Metal Melt Quality, with certain product
lines suffering a 25% revenue reduction
throughout the three year period
(principal risk: Existing market).
The stress tests incorporate those mitigating
actions and cost-saving measures which are
within the Group’s control. The results of the
stress tests demonstrated that, based on
the balance sheet position at 30 November
2023, the Group would be able to withstand
the impact, should all these scenarios arise
together over the three year assessment
period.
Viability assessment
On the basis of this and other matters
considered by the Board during the year, the
Board has a reasonable expectation that the
Group will be able to continue in operation
and meet its liabilities as they fall due over the
three year period assessed. In doing so, it is
recognised that such future assessments are
subject to a level of uncertainty that increases
with time and, therefore, future outcomes
cannot be guaranteed or predicted with
certainty.
Going concern assessment
The Directors have made appropriate
enquiries and reviewed the current financial
position, including all the information
presented in its strategic review of the
business and the forecast covering the twelve
months from the date of this report (“the
going concern assessment period”) and
have considered foreseeable downsides,
stress tests and scenarios as outlined above.
The Directors have a reasonable expectation
that the Group and Company have adequate
resources to continue in operational existence
for the going concern assessment period.
Accordingly, they continue to adopt the
going concern basis in preparing these
accounts.
Porvair plc Annual Report & Accounts 2023
Strategic report
27
Porvair plc Annual Report & Accounts 2023
Strategic report
28
ESG report
ENVIRONMENTAL, SOCIAL
AND
GOVERNANCE
REPORT
Porvair is well positioned to play its part in the drive
towards a sustainable future. We aim to develop our
businesses for the benefit of all our stakeholders.
Porvair contributes to a sustainable future through the products we make;
the way we operate; and how we engage with our employees.
Information included in this report covers our activities in 2023 both at
Group level and within each of our operations.
ESG report
Porvair plc Annual Report & Accounts 2023
Strategic report
29
Our
approach
to ESG
reporting
ESG
is
at the heart
of
who
we are and
what
we do. Principal measures
of success
at
Porvair,
on which
management
incentives
are based, are consistent earnings per
share
growth,
and
improvement
in
selected
ESG
metrics.
Many
of
the
products
developed
by
Porvair are
used
to benefit the
environment
and
wider
society.
We
also
recognise
that
our
own
operations
can make
an important
contribution
to
a cleaner
and
safer
world.
Our aim
is
to
act responsibly
and
with
integrity
wherever
we
operate.
Measuring
and
reporting
our environmental,
social
and
governance
performance
is
key
to
understanding
the
impact
of
our
operations;
driving
continuous
improvement;
and
maintaining
a
transparent
dialogue
with
our
stakeholders.
The
Group
supports
the
UK
Government
goal
of
reducing
greenhouse
gas
emissions
to
Net
Zero
by
2050
and
we
report
climate
disclosures
aligned
with
the
Task
Force
on Climate-related
Financial
Disclosures
(“TCFD”)
as required.
Our
approach to ESG will continue to
evolve to meet future challenges and
opportunities and we remain committed to improving performance; taking into
account both the needs of the business and the expectations of our stakeholders.
Ben Stocks,
Group Chief Executive
Contributing to UN Sustainable Development Goals (“SDGs”)
The following 10 goals are where we believe we can make the most meaningful contribution.
AN ESG FRAMEWORK TO CREATE
SHARED VALUE
Strong ESG performance is essential
to deliver on our strategic purpose
and create value for each of our
stakeholders. We organise our ESG
commitments using a framework
that we updated in 2022. This helps
us to set targets, drive progress,
and enhance transparency through
our reporting and disclosures.
The metrics we use to measure
our performance
ESG metrics
Carbon intensity.
Lost time accidents.
Employee Engagement.
Senior staff gender balance.
Employee voluntary quit rate.
ENVIRONMENTAL
The Group has followed an environmental
technology strategy since 2004. Porvair
products are used to curtail emissions,
cut waste, reduce pollution or improve
process efficiency. Over the last 15 years
the Group has delivered compound annual
growth of 11% in earnings and 8% in
revenues. As the company grows and
evolves, climate change, and its impact
on the environment, is at the heart of our
strategic thinking – as shown on pages
30 to 36.
Just as we seek to help
customers
reduce their environmental footprint, so we
strive to do the same in Porvair. As we show
on pages 37 to 39, in our own operations,
we are reducing our carbon intensity,
resource usage and waste streams to make
incremental reductions
in environmental impact.
SOCIAL
Our people deliver our success and a
diverse and inclusive culture supports
performance and growth. Wherever the
Group operates, we are committed to
creating shared value by engaging with
local communities, investing in local supply
chains and employing local people.
One of the lessons learned through the
pandemic was how critical employee
and community involvement is for our 22
operating
plants. In recent
years we have
concentrated
on getting
better
at
this,
introducing
employee
surveys
and
KPIs
covering
health
and
safety,
gender
diversity
and employee satisfaction
as
shown
on
pages 40 to 45. Senior staff bonuses
in 2023 were linked to Employee
Engagement improvement.
GOVERNANCE
Strong and effective governance is
fundamental to building a resilient and
successful organisation. Robust policies,
standards and management systems guide
our operations to address risks and
opportunities and enable us to measure
our performance and commitments.
Transparent and robust governance, safe
and responsible operations, continuous
improvement and innovation
are
key to
delivering
our
strategy.
As
a
UK
public
company,
we
understand
and
conform
to
all
regulatory,
governance
and
fiduciary
guidelines
and
listen
closely
to
feedback
from
stakeholders.
Our
governance
framework
is
set
out
on
pages 32, 46,
54,
55,
and
59
to
61.
Environmental risks arising from climate
change are addressed in the review of
principal risks on page 23 and in the
Viability report on pages 26 and 27.
Carbon intensity reduction
23%
Having reduced our carbon intensity by 22%
between 2020 and 2022, we set a target to
reduce our carbon intensity by a further 10%
between 2022 and 2025. In 2023 we reduced
our intensity by 1%.
Engagement and decision-making
s172
Open, regular and transparent engagement with
stakeholders is integral to decision-making and to
the way we do business and ensures we continue
to operate in a balanced and responsible way.
Gender diversity
33%
We are committed to developing a diverse
and inclusive workplace. 33% of the Group’s
permanent workforce are female.
What ESG means at Porvair
Porvair plc Annual Report & Accounts 2023
Strategic report
30
ESG report
continued
ENVIRONMENTAL
From clean water analysis
to lightweight sustainable metals;
from reducing marine pollution to
filtration in energy and industrial
process; Porvair’s capabilities
help to address key environmental
challenges for our customers.
Porvair businesses support many
critical industries by providing
products and solutions that meet
increasing demands for safety,
efficiency and environmental
benefit. Most Porvair products
contribute to a cleaner world by
reducing emissions, improving
process efficiencies or identifying
pollutants.
We recognise our responsibility to
the wider community in which we
operate, managing our impact as
well as understanding emerging
environmental trends that may have
an impact on our business, our
customers and wider stakeholders
over time.
In our own operations, we are
reducing our carbon intensity,
resource usage and waste streams
to make incremental reductions in
environmental impact.
IN THIS SECTION
TOWARDS
NET ZERO
CLEAN ENERGY TRANSITION
CHALLENGES AND OPPORTUNITIES
How climate change responses influence
our strategic planning and decision-making.
The Group has a Reduce, Replace, Remove
framework for managing its carbon
intensity goals.
TCFD
REPORTING
Aligning our reporting to TCFD
recommendations informs our key
stakeholders of the climate-related issues
that may impact Porvair. Using this format
enables us to explain our process for
responding to these challenges in
a purposeful and comparable context.
The Group provides data on Greenhouse
Gas Emissions, Water and Waste. The
Group reports its ‘Scope 1 and 2’ emissions
in tonnes of carbon dioxide. Scope 1 covers
direct emissions that emanate directly from
Group operations. This is principally natural
gas burned in manufacturing and fuel used
in company-owned vehicles. Scope 2
covers indirect emissions, those generated
by key suppliers, principally electricity.
CARBON:
REDUCE
REPLACE
REMOVE
CARBON EMISSIONS,
RESOURCE USAGE AND
WASTE STREAMS
GHG emissions
(total gross emissions)
18,874
(tCO
2
)
73% of carbon emissions arise in the
Metal Melt Quality division.
Carbon intensity
0.107
(kCO
2
/£)
Carbon intensity is 1% lower than 2022 and
23% lower than 2020.
Reducing our carbon intensity since 2010
52%
reduction
The Group has monitored its carbon
intensity ratio since 2010 and in that time
the intensity ratio has dropped by 52%
from 0.224 to 0.107.
MEASURING PERFORMANCE IN 2023
Carbon Intensity Ratio
The Group aims to reduce its total carbon intensity ratio over time and exceeded its
original goal to reduce carbon intensity by 10% between 2020 and 2025. Its new target
is to achieve a further 10% reduction between 2022 and 2025.
Porvair plc Annual Report & Accounts 2023
Strategic report
31
Products and solutions to meet
evolving global needs
We work in close partnership with our
customers to solve their increasingly
complex challenges and engineer
products and services to enable a
sustainable future.
Tightening environmental
regulations
Governments, regulatory authorities
and businesses are mandating tighter
standards of environmental cleanliness;
product performance; testing regimes;
and product quality. For filtration experts
this is a growth opportunity.
Porvair’s filtration and environmental
technology expertise, and focus on
research and development, help our
customers meet safety and regulatory
requirements.
We have operating plants in the UK, US, Germany, Hungary, Belgium,
the Netherlands, India and China.
METAL MELT QUALITY PRODUCTS
The Group’s Metal Melt Quality products
remove contamination, cut waste and
help to improve the strength to weight
ratio of metal components.
INDUSTRIAL FILTERS
The Group’s industrial filters contain
and reduce emissions.
AEROSPACE FILTRATION
Many of the Group’s filters provide
protection from contamination for
aerospace systems and processes,
which helps improve quality and
longevity and reduces waste.
WATER ANALYSIS
The Group’s water analysis equipment
ensures drinking water is fit for
consumption and waste water is not
contaminated.
NUCLEAR FILTERS
The Group’s nuclear filters prevent
emissions of fissile material.
PETROCHEMICAL FILTRATION
The Group offers filtration solutions to
oil refineries to reduce refinery waste
and to improve the quality of bunker
fuel for ships.
MARITIME WATER ANALYSIS
The Group’s maritime water analysis
equipment monitors small changes in
the oceans’ chemical composition.
WASTE REDUCTION
Many of the Group’s filters are cleanable
and reusable and can replace single use
disposable filters, reducing waste in
customers filtration systems.
The Board has direct responsibility and accountability for the
assessment and management of all risks and opportunities, including
climate change. It has not delegated ESG matters to a separate
Committee. The Group Chief Executive has executive responsibility
for delivering the Group’s ESG strategy. ESG matters (including
climate-related risks and opportunities) are included in all weekly
and quarterly divisional reviews with senior management. Senior
management incentives include progress on ESG performance,
including climate change. We have processes in place to ensure our
employees and other stakeholders are aware of our focus in this area.
We have assessed climate-related risks and the impact on our
strategy and markets, including those described on page 35. As a
specialist filtration and environmental technology business, we have
a part to play in easing the transition to lower emissions. We are
well placed to support our customers with their own sustainability
undertakings. We will further accelerate the reduction of our emissions
by anticipating and taking advantage of opportunities presented by
emerging technology and process innovations. There are limited
issues faced by our operations as a direct result of changes in climate.
Our focus is on finding solutions for our customers’ challenges, which
arise over time and on an uncertain timescale.
We considered a 2
o
C scenario and have disclosed our findings,
including a reduction in iron foundry revenue, in the Viability report
on a qualitative not quantitative basis.
Climate change issues are integrated into our Group risk management
and planning processes. Climate-related risks are addressed as an
emerging risk to the business in the Group’s review of principal risks.
The Group identifies, assesses and manages climate-related and Net
Zero risks and opportunities as part of its regular risk assessment process.
Strategic risks are discussed at an annual Board strategy review.
Investment priorities are set accordingly. Capital investment options
are assessed for their carbon impact.
The Group’s key target was to cut our Scope 1 and Scope 2 carbon
intensity ratio by 10% between 2020 and 2025 as a first step towards
reaching Net Zero emissions across our direct operations by no later
than 2050. It achieved this in 2022 and set a new target of a further
10% reduction between 2022 and 2025.
Porvair manufactures thousands of different products and components
each year, which are included in a wide range of customers’ products and
processes. We have looked at including a Scope 3 measure into our
targets but cannot see a reliable way of reporting Scope 3 emissions
for the time being.
The Group includes achievement of specific division-related ESG
targets, including climate change, as a metric in all its senior
management annual bonus schemes.
The Group monitors its water usage and seeks to reduce usage in
each of its plants.
Our banking fee arrangements include a margin benefit for reducing
our greenhouse gas emissions and operating more safely.
a. Describe the board’s oversight of
climate-related risks and opportunities.
b. Describe management’s role in assessing
and managing climate-related risks and
opportunities.
a. Disclose the metrics used by the
organisation to assess climate-related risks
and opportunities in line with its strategy
and risk management process.
b. Disclose Scope 1, Scope 2 and, if
appropriate, Scope 3 GHG emissions,
and the related risks.
c. Describe the targets used by the
organisation to manage climate-related
risks and opportunities and performance
against targets.
a. Describe the climate-related risks and
opportunities the organisation has identified
over the short, medium and long-term.
b.
Describe the impact of climate-related risks
and opportunities on the organisation’s
businesses, strategy and financial planning.
c. Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario.
a. Describe the organisation’s processes for
identifying and assessing climate-related risks.
b. Describe the organisation’s processes for
managing climate-related risks.
c. Describe how processes for identifying,
assessing and managing climate-related risks
are integrated into the organisation’s overall
risk management.
Recommendations and disclosure summary
Porvair’s alignment and cross-referencing
Porvair plc Annual Report & Accounts 2023
Strategic report
32
ESG report
continued
Page 46 and
59 to 61
Pages 33 to 36
Pages 26 and 27
Page 38
Note 18
Page 23
Pages 38 and 39
Page 39
• Governance
Disclose the governance
around climate-related
risks and opportunities.
• Strategy
Disclose the actual
and potential impacts
of climate-related risks
and opportunities on
the organisation’s
businesses, strategy,
and financial planning,
where such information
is material.
• Risk management
Disclose how the
organisation identifies,
assesses and manages
climate-related risks.
• Metrics and targets
Disclose the metrics
and targets used to
assess and manage
relevant climate-
related risks and
opportunities, where
such information is
material.
ENVIRONMENTAL
|
Social | Governance
Task Force on Climate-related Financial Disclosures
(“TCFD”)
The Financial Stability Board’s TCFD recommendations
encourage clear disclosure of governance, strategy, risk
management, metrics, and targets in relation to our
climate-related risks and opportunities, enabling
transparent disclosure on how we are taking action
on climate change.
The Group adopted TCFD recommendations in 2022
and has also applied the Companies (Strategic Report)
(Climate-related Financial Disclosures) Regulations 2022.
Aligning our reporting to the TCFD recommendations
informs our key stakeholders of the climate-related issues
that may impact the Group. Using this format enables us
to explain our process for responding to these challenges
in a purposeful and comparable context.
We have based our disclosures on the TCFD ‘Guidance
for all sectors’. The table below sets out where you can
find information on how we have applied each of the
recommendations of the TCFD, and where we have not
adopted the TCFD recommendations in full, we have
explained the reasons. We understand that what is
important to our shareholders evolves over time and we
will continue to assess our approach to ensure we remain
relevant in what we measure and disclose.
Background
As industries and governments embrace
Net Zero and Absolute Zero goals there will be
both challenges and opportunities for industry.
This report examines how climate change
and the global response to it might affect the
markets served by Porvair and identifies where
the Group might be either adversely or
positively affected.
While our environmental technology strategy
has not changed since 2004, the Group itself
has evolved significantly. Back then, Group
revenues were evenly split between what is
now the Metal Melt Quality division and what
we then called the Microfiltration division,
which principally served aerospace and industrial
customers. New product investments were
made in what we believed at the time to be
the environmental technologies of the future.
Initially, we tried to pick winners: in fuel cell
bipolar plates; advanced battery separators;
clean-coal filters; computer cooling components
and diesel exhaust traps. By 2007 it was
becoming clear that, for a business of Porvair’s
size, picking winners was not going to work.
We had some successes, but we also had too
many failures and projects were taking
too long.
Since 2007, rather than trying to pick winning
products, we have sought to identify market
trends and position the Group to benefit from
them. Working with customers on smaller-scale
product developments and seeking to acquire
complementary technologies as needed has
brought more consistent returns on investment
and delivered better environmental outcomes.
Looking ahead, we will continue this approach
as our markets react to environmental
regulation and much greater societal pressure
for climate-related change.
In thinking about positioning the Group,
we use a planning framework as set out
overleaf, and allocate capital accordingly.
Porvair plc Annual Report & Accounts 2023
Strategic report
33
TOWARDS NET ZERO
CLEAN ENERGY
TRANSITION CHALLENGES
AND OPPORTUNITIES
How climate change responses influence
our strategic planning and decision-making.
The Group has followed an environmental technology strategy since 2004.
As the company grows and evolves, climate change, and its impact on the
environment, is at the heart of our strategic thinking and actions.
We focus on four key markets
Increasing demand for our products
and solutions is driven by established
global growth trends, strong customer
relationships, technical excellence and
the move towards a sustainable future.
Metal Melt
Quality
Industrial
Laboratory
Aerospace
•
Plastics and chemical manufacture will move
to low carbon feedstocks, chemical or
biochemical transformations and renewable
utilities. This, as the Energy Transitions
Commission and others show, will require
new industrial feedstock processes capable
of much lower emissions.
•
Agribusinesses will transform: fossil-based
inputs will diminish through regulation and
price; competition from digital chemistry
and biology products will increase (e.g. meat,
flour and fish from bacteria); and moves
to re-wild agricultural land will accelerate.
Similar pressures will transform global fishing
(Source: Deloitte).
•
Manufacturers will seek to eliminate the
direct use of fossil fuels and will invest in
technologies to boost labour and carbon
productivity and make more efficient use of
electrical power and water.
•
Gas pipelines will be replaced by hydrogen,
which will be transported by sea – either
compressed or converted to ammonia. Sea
freight, albeit with much tighter emission and
ballast regulations, will remain critical; although
the costs, complexity and carbon load of
international transport will encourage shorter
supply chains for manufactured goods.
•
Investment in biosciences will be
driven by a growing demand for clean
technologies and digital products.
Porvair plc Annual Report & Accounts 2023
Strategic report
34
ESG report
continued
Strategic Planning Framework
For the remainder of the 2020’s and into the
2030’s,we make the following assumptions:
•
Aircraft and airports will be engineered to run
more cleanly and efficiently. Synthetic aviation
fuel will increasingly replace fossil fuels and
will act as an interim fuel while electric and
hydrogen sources of energy are developed.
Work published in the UK by both the Jet Zero
Council and the Aerospace Technology
Institute is helpful in identifying likely
technology pathways (Source: Aerospace
Technology Institute publication 2022/2023).
•
Internal combustion engines will increasingly
be replaced by electric power. Battery, hydrogen
combustion, and fuel cells will all be used as
motive power sources where practical.
•
Hydrogen infrastructure will grow as green
hydrogen develops. Electrolysers, fuel cells
and H
2
combustion engines will be supported
by new applications around storage tanks,
pipelines, pumps, filters and seals. There is a
good deal of literature in this area, much of it
well summarised by The Carbon Trust and
the EU Clean Hydrogen Alliance.
•
Oil extraction will diminish, as will oil-based
plastics and greenhouse gas contributing
derivatives like methane. Carbon Capture and
Storage technologies will develop in support
of Blue Hydrogen. Hydrogen will grow as
an industrial feedstock. As electricity and
electrolyser usage grows, demand for critical
minerals, including noble metals, rare earth
elements, graphite, nickel and copper, will
expand. Work by the International Energy
Agency (“IEA”) and others discuss these
and related themes.
•
Electricity generation will move decisively
to solar, supported by wind, hydrogen
and modular nuclear power.
•
The International Renewable Energy Agency
posits that energy transformation will lead
to geopolitical change. Petro-states will see
declining incomes while regions where
solar power is viable will grow quickly and
experience inward investment from power-
hungry industries such as aluminium and
data processing.
•
All forms of recycling will become increasingly
regulated. Recycled materials will adopt
carbon labelling. More easily recyclable
materials will benefit – notably aluminium,
which in line with the Aluminium Sustainability
Initiative, will increasingly be smelted using
renewable energy (Source: CRU, others).
As a specialist filtration and environmental
technology business, we have a part to play in
easing the transition to lower emissions.
2
Case study
Testing low carbon aviation
technologies
For airlines to meet their ambitions to
achieve Net Zero carbon emissions by
2050, they need to phase out the use
of fossil fuels. Green Hydrogen and
Sustainable Aviation Fuel (“SAF”) are
potential solutions the global aviation
sector is planning to use to achieve that
ambition. Porvair filters are used in
on-board SAF systems.
Source: Airbus ZEROe concept aircraſt powered using liquid hydrogen.
Image courtesy of AIRBUS S.A.S. 2021 – All rights reserved
•
A380 multimodal
test platform
with its
capacity to store large
hydrogen tanks.
•
4 liquid hydrogen
tanks
stored in a
caudal position
•
Hydrogen
combustion engine
located along the
rear fuselage.
•
Liquid hydrogen
distribution system
Airbus ZEROe demonstrator:
Towards the world’s first
hydrogen-powered aircraft
ENVIRONMENTAL
|
Social | Governance
Green Hydrogen
Airbus launched their ZEROe demonstrator
with the aim to test hydrogen combustion
propulsion technology on an A380
multimodal platform. Three concept
hybrid-hydrogen aircraſt have been designed
to enable the exploration of a variety of
configurations and hydrogen technologies
that will shape the development of future zero
emission aircraſt. They are powered by
hydrogen combustion through modified
gas turbine engines.
synthetic aviation fuel will still need specialist
filtration; electrical systems will require dust
and air filters; batteries, electrical motors and
computer systems will all require efficiently
filtered coolant architecture.
Opportunities.
Porvair products that
directly and indirectly reduce emissions,
facilitate recycling, prolong operating life or
cut process waste, will grow. These are the
activities in which Group investment (capital,
product development and skills) will be
focused:
•
All industrial emission regulations will tighten.
Process efficiency improvements will require
cleaner working environments and higher
purity raw materials. Both will drive
investment in more efficient equipment and
more specialist filtration. Around 15% of
Group sales are derived from this kind of
general industrial filtration.
•
Tighter regulation will also drive growth
in test and measurement capabilities. Water
quality standards (16% of Group sales) will rise
as the developing world brings its standards
towards those in place in the EU, US and
China. Analytical instrumentation use will
Investment in life sciences will be driven by
population growth and population ageing.
Investment in bio-sciences will be driven by
biotechnology development and synthetic
biology growth. Both will be helped by
AI-directed molecule design, robotic
synthesis and quantum simulation. Smaller,
less expensive and more accurate analytical
instruments will speed up research and
boost laboratory automation.
•
Emissions standards across industry
will tighten.
•
‘Dematerialisation’ trends will lead to more
selective business travel and a greater
propensity for home working. Globalisation
will nonetheless continue, and with it the
drive to travel for tourism and to maintain
family and friendship ties.
How this framework might affect
Porvair’s markets
Challenges.
Some of our activities will
decline under these planning assumptions.
Our approach is to manage this decline, find
alternative revenue streams, and approve
only maintenance capital expenditure. Such
activities include:
•
Internal combustion engine components.
Around 3.5% of Group revenues are
associated with internal combustion engines,
both auto and agricultural. These applications,
including filters for engine blocks and
gearbox housings, air intake ports and
silencers will decline as electric vehicle usage
grows. Expectations for growth of EVs by
2030 range from around 12% of the global
car fleet (Source: IEA) to 47% (Source:
McKinsey).
•
Plastics and chemicals. Filters used in fossil-
based olefins, aromatics and polymers
account for around 5% of Group sales, and
are likely to decline. Where they are replaced
by similar materials made from bio-feedstocks,
a new category of process filtration will
emerge, with similar levels of filtration
required.
•
The outlook for aviation, around 15% of
Group sales, is mixed. Demand for air travel is
expected to grow with a larger middle-class
global population driving demand through
tourism and family ties, but the industry’s
carbon footprint will remain a problem.
The industry will transition with growth
expected at around 6% per annum between
2023 and 2042 (Source: Boeing). There will
still be opportunities in the transition:
increase as laboratory equipment gets smaller
and less expensive. This in turn will drive the
need for sample preparation (10% of Group
sales) and associated automation (5% of
Group sales).
•
Aluminium filtration (10% of Group sales)
is expected to grow as the lightweight
and fully recyclable properties of the metal
become more valuable. Kilos of aluminium
per auto vehicle will rise with EVs using
aluminium for energy density, crash, and
thermal management purposes. Can-stock
production will increase as beverage cans
grow at the expense of plastics. Higher-grade
aluminium requires better filtration. New
aluminium cast house capacity will be built
where renewable energy sources, mostly
solar, are plentiful. The need for shorter
supply chains will encourage newer, more
efficient aluminium processing capacity in the
western hemisphere.
Porvair plc Annual Report & Accounts 2023
Strategic report
35
Porvair products that directly and indirectly reduce emissions,
facilitate recycling, prolong operating life or cut process waste,
will grow. These are the activities in which Group investment
(capital, product development and skills) will be focused.
Case study
Lightweight,sustainable materials
Aluminium is an essential material in the
EV market, playing a vital role in battery
technology,body construction, infrastructure
and driving sustainability. As the demand
for sustainable and efficient EVs continues
to increase, the use of aluminium in their
production will only become more critical.
EVs require lightweight materials to
maximise efficiency and range. Aluminium
meets these requirements by providing
strength and durability while minimising
weight. One of the most significant
advantages of using aluminium in EVs is
that it’s a highly recyclable material. This
recyclability feature allows automakers to
reduce their carbon footprint and help
to conserve natural resources.
Aluminium demand for batteries and enclosures
1.9m
tonnes per year by 2030
According to BNEF, aluminium demand for
batteries (including battery enclosures) will
reach approximately 1.9 million tonnes per
year by 2030.
Source:BloombergNEF (BNEF)
•
Battery pack enclosures
•
Body construction
•
Charging infrastructure
The role of aluminium in the
electric vehicle (EV) industry
13
26.
9
8
Porvair plc Annual Report & Accounts 2023
Strategic report
36
ESG report
continued
•
Laboratory consumables (10% of Group sales)
will increasingly be recycled or re-used where
possible. Both plastics and glass have carbon
implications in their manufacture, and the
Group has capabilities in both materials.
Plastics emit more carbon per tonne in
manufacture than glass but are less breakable
and easier to manufacture. In some clinical
applications, the need for cleanliness and
chemically inert surfaces will be paramount
and virgin materials made in clean-room
environments will be needed. However, the
capability to wash, dry and test consumables
for cleanliness will increasingly be welcomed
in many laboratory situations.
Summary
This planning framework, and the opportunities
and challenges it suggests, are at the heart of
the Board’s annual strategic review and inform
all strategic decisions. Positioning Porvair to
contribute to evolving transformation and
climate-related trends is core to our thinking
and decision-making.
Positioning Porvair to address climate-related trends
is core to our thinking and decision-making.
Science and technology are key to a
sustainable future in everything from
tackling disease to developing clean
energy technologies.
Case study
The growing need for
sustainable laboratory
consumables
The development laboratory in the
Laboratory division’s Wrexham plant has
been awarded a Green Level certification
for its outstanding work in reducing its
environmental impact.
Laboratories – in universities, research
institutes, hospitals and companies –
are essential to research, analysis and
teaching. They oſten bring together
several disciplines and involve different
configurations and scales of wet, dry
and computational facilities.
Laboratory buildings, processes and
equipment, by their nature, can be
resource and energy intensive. Safely
carrying out high-quality research can
require temperature control, ventilation or
high sterility. The sourcing, manufacture
and disposal of specialised laboratory
consumables and instruments all have
an environmental footprint. Transitioning
to a sustainable laboratory not only helps
reduce carbon footprint but also lowers
operational costs.
ENVIRONMENTAL
|
Social | Governance
Case study
Highly productive
manufacturing and automation
Ratiolab, one of our acquisitions in
2023, brings a Hungarian highly
productive manufacturing operation to
the Laboratory division. Its new plant has
fully robot controlled injection moulding
machines that produce, fill and pack
laboratory consumables.
my green lab
certification.
Porvair plc Annual Report & Accounts 2023
Strategic report
37
Carbon intensity and climate-related
business process improvement
The Group has a ‘Reduce, Replace, Remove’
framework for managing its carbon goals.
Actions include:
• Upgrading our glass furnaces to equipment
which is 33% more fuel efficient.
• Installing one automated sintering furnace
in Caribou to replace three older and less
efficient furnaces.
• Replacing air compressors with variable
frequency compressors in our main Metal Melt
Quality plant, which has reduced electricity
consumption in the plant by 10%.
• Solar panel installations on Freehold plants
in the UK and one Leasehold plant in the
Netherlands. We are working with the landlords
of our other leased properties to consider
installing solar panels on those. US installations
are also being considered.
Actions include:
• The Group’s two largest fossil fuel related raw
material categories are foam and organic
binders in metal melt filters and various plastics
for moulded labware and sintered plastic filters.
• The Group has developed a foam-free molten
metal filter that is increasingly used by customers,
albeit for relatively small applications.
• Removing foam from larger aluminium filters
has been a long-held goal, but the technical
challenges are substantial. The use of foam
in this application also has to be assessed in
the wider context: the growth in aluminium
can-stock demand driven by the replacement
of plastic packaging.
• The Group regularly assesses the volume
of technical plastics used in laboratory
filtration. Where technical characteristics
such as cleanliness or inertness are needed,
investments are directed at recycling off-cuts;
reducing scrap and energy used; and
re-designing to lower product weight.
• The Group has also started to market processes
capable of cleaning and re-using microplates.
This comes with several technical challenges
around effective washing and validation of
cleanliness, but in some circumstances the
systems work well and the plastics savings are
considerable.
• Microwave or RF dryers can be used for
some processes; and more efficient burners,
refractories and control systems are specified
in maintenance cycles.
• Where electricity can be reliably sourced
from renewable sources, it is used.
Actions include:
• LED lighting in all plants.
• Switching from hydraulic to servo-assisted
power packs.
• Switching waste disposal from landfill
to recycling.
• As production equipment comes to the end
of its life and is replaced, new equipment
purchasing decisions are based in part on
energy efficiency.
• Our Caribou plant is installing a closed loop
chiller system to cool its furnaces, which will
significantly reduce the Group’s water
consumption.
Case study
Ceramic and glass
manufacturing
The Group’s largest use of fossil fuels is in
its ovens and furnaces used in ceramic and
glass manufacture. Oil and gas fired boilers
for heating are the next biggest source.
The Group actively assesses alternative
technologies for both these processes.
REDUCE
We aim to reduce our carbon
(and other) emissions by amending
processes or adopting better
abatement technologies.
REPLACE
We aim to replace fossil fuels,
where feasible, with greener forms
of energy.
REMOVE
We aim to remove more carbon-
intense raw materials and practices
from our operations.
33%
Over the next two years, our glass ovens
will be replaced with ovens that are 33%
more fuel efficient.
Porvair plc Annual Report & Accounts 2023
Strategic report
38
ESG report
continued
ENVIRONMENTAL
|
Social | Governance
Greenhouse gas emissions
The Group has implemented the UK
Government’s guidance on measuring and
reporting greenhouse gas emissions, in line
with DEFRA guidelines, using conversion units
published by the Carbon Trust. The Group
reports ‘Scope 1 and 2’ emissions in tonnes
of carbon dioxide. Scope 1 covers direct
emissions that emanate directly from Group
operations. This is principally natural gas
burned in manufacturing and fuel used in
company owned vehicles. Scope 2 covers
indirect emissions, those generated by key
suppliers, principally electricity.
The Group used 76.1 million (2022: 74.1
million) kWhr of energy in the year. 6.0 million
(2022: 6.7 million) kWhr was used in the UK.
Gross emissions of 18,874tCO
2
(2022: 18,660
tCO
2
) are 1% higher than the prior year, all
accounted for by the acquisitions in the year.
The Metal Melt Quality division accounts
for 73% (2022:71%) of Group emissions.
Its emissions increased by 4% in line with the
increase in revenue.
The Laboratory division’s emissions reduced by
2%. The acquisition of Ratiolab accounted for
7% of the emissions. The like for like operations
reduced their gross emissions by 9%, largely
as a result of lower production in 2023.
The Aerospace & Industrial division’s emissions
reduced by 9% compared with a 7% increase
in revenue. The benefits of investment in new
and more productive equipment has helped
to reduce emissions.
The Metal Melt Quality division runs gas
powered furnaces to fire its ceramic filters.
The gas to run these furnaces is the largest
component of the Group’s emissions. Electricity
provides heat, light and power for the Group’s
premises and other plant and equipment.
The plant and equipment is mainly light
manufacturing equipment but does include
some high pressure presses and electric
furnaces.
Group CO
2
emissions were highest in 2018
at 20.7 ktCO
2
and are 10% lower in 2023 at
18.9 ktCO
2
. In that five year period, Group
revenue has increased by 37%.
2010 is used as a base year and ‘kilogrammes
of CO
2
emission per pound sterling of revenue’
as a measure of intensity. The intensity ratio in
2023 was 52% lower than 2010. The Group
set a target in 2020 to reduce its total intensity
ratio by 10% between 2020 and 2025. In
2022, its intensity ratio was 22% lower than
2020 and the Board has set a further target to
reduce carbon intensity by 10% from the 2022
base by 2025. 2023 intensity reduced by 1%.
Energy Saving Opportunity Scheme
(“ESOS”)
The UK Government established ESOS to
implement Article 8 (4-6) of the EU Energy
Efficiency Directive (2012/27/EU). ESOS is
the mandatory energy assessment scheme
for larger organisations in the UK meeting
the qualification criteria. The Environment
Agency (“EA”) is the UK scheme administrator.
Porvair has completed two full EA audits.
Porvair is required to carry out further ESOS
assessments every 4 years. Reports by the
auditors will incorporate recommendations
identifying opportunities for cost saving
energy measures.
REACH
The first significant impacts of REACH (the
European Union regulation concerning
the Registration, Evaluation, Authorisation
& restriction of Chemicals) have had an impact
on some Porvair processes.
Trichloroethylene and chromium trioxide
appear on the ECHA Annex XIV list of products
that have been banned unless specifically
authorised for use. To replace chromium
trioxide, used in Alocrom 1200, Porvair
Filtration Group’s Segensworth plant designs
new products using a replacement treatment
(SURTEC). For existing products, it has joined
an aerospace group which has special
dispensation to continue to use Alocrom 1200
on existing products. Air and manual handling
procedures for the use of Alocrom 1200 have
been significantly improved.
The Metal Melt Quality division keeps
under review its use of boric acid, which is
a substance named in the Candidate List
of the REACH regulations, to ensure that it
meets its REACH reporting obligations on
filters shipped into the EU.
Waste
The Board monitors waste disposal and
recycling volumes. The Board uses categories
of waste set out in ISO 14001: 2015,
Environmental Management Systems, to
categorise its solid and liquid waste. The
Board expects that a focus on the treatment
of waste will lead to reductions in waste and
an increase in recycling.
Water
The Group’s operations are not large users of
water. Total Group consumption of water in
2023 was 55 million litres (2022: 55 million
litres). 50% (2022: 52%) of the Group’s water
usage occurs in the Aerospace & Industrial
division, where the sintering furnaces use
significant amounts of water in their cooling
systems. Installation of a closed loop chiller
system to cool our US based sintering furnaces
began in 2023 and should commission in 2024.
Once installed and operational this should
significantly reduce the Aerospace & Industrial
division’s water usage. 42% (2022: 41%) of
the usage arises in the Metal Melt Quality
division, where water is a key component of
the ceramic slurry used to make ceramic filters.
The Metal Melt Quality division uses water
recovery systems and waste water filtration to
minimise its usage and to return only clean
water to the waste water system.
Case study
Reducing resource usage and
waste streams
All of our management teams are
incentivised to implement sound ESG
initiatives. In addition to reducing our
carbon emissions, we look to make less
use of landfill. Some of our waste lends
itself to recycling and some to composting.
We aim to reduce our use of water by
using closed loop systems where we can.
Installation of a closed loop chiller system
to cool our US based sintering furnaces
began in 2023 and should commission in
2024. Once installed and operational this
should significantly reduce the Aerospace
& Industrial division’s water usage.
Total Group water consumption
55 million
litres
Total Group consumption of water in 2023 was
55 million litres (2022: 55 million litres).
Water usage
50%
50% of the Group’s water usage occurs
in the Aerospace & Industrial division.
Waste management
ISO 14001
:
2015
The Board uses categories of waste set out in ISO
14001: 2015, Environment Management Systems,
to categorise its solid and liquid waste.
Porvair plc Annual Report & Accounts 2023
Strategic report
39
Case study
Reducing energy consumption
Reducing energy consumption is an
important criterion in every capital
investment and as equipment is replaced,
particularly in the Metal Melt Quality
division, we look to replace old equipment
with alternative technologies with a lower
carbon footprint.
In 2021, the Metal Melt Quality division
carried out a review of equipment in its
largest plant that could be upgraded
to lower its carbon footprint. A key
recommendation from that survey was to
replace the air compressors with variable
frequency drive compressors. These
were installed in August 2023 and since
then the plant’s electricity consumption
has reduced by 10%.
CARBON INTENSITY
The Group met its target set in 2020 to cut
its Scope 1 and Scope 2 carbon intensity
ratio by 10% by 2025 in 2022. We have
re-set the target to reduce carbon intensity
by a further 10% between 2022 and 2025.
The Group does not set an absolute
greenhouse gas emission target. We expect
demand for our products to grow and we
therefore believe carbon intensity is a better
measure than absolute emissions.
WATER
Water is a vital resource and essential
to every ecosystem and imperative
to a sustainable future. Our water strategy
is focused on exploring efficiency
improvement opportunities to optimise
water usage across our operations. We
also contribute to the availability of clean
water through products our customers
use to improve water quality and treat
wastewater.
Greenhouse gas (GHG) emissions*
Year ended
Year ended
Year ended
30 November 2023
30 November 2022
30 November 2010
tCO
2
tCO
2
tCO
2
Scope 1 – Direct GHG Emissions
Gas
10,978
10,536
8,571
Owned vehicles
488
468
368
Total Scope 1 gross emissions
1 1,466
1 1,004
8,939
Scope 2 – Indirect GHG Emissions
Electricity
7,408
7,656
5,204
Total Scope 2 gross emissions
7,408
7,656
5,204
Total gross emissions
18,874
18,660
14,143
kCO
2
/£
kCO
2
/£
kCO
2
/£
Scope 1 intensity ratio
0.065
0.064
0.142
Scope 2 intensity ratio
0.042
0.044
0.082
Total intensity ratio
0.107
0.108
0.224
Carbon & Emissions data
Geographical breakdown
(tonnes of CO
2
)
Year ended 30 November 2023
Year ended 30 November 2022
Year ended 30 November 2010
Scope 1
Scope 2
Total
Scope 1
Scope 2
Total
Scope 1
Scope 2
Total
tCO
2
tCO
2
tCO
2
tCO
2
tCO
2
tCO
2
tCO
2
tCO
2
tCO
2
UK
432
2,005
2,437
497
2,197
2,694
479
1,497
1,976
US
9,554
4,613
14,167
9,460
5,003
14,463
8,350
3,639
1 1,989
ROW
1,480
790
2,270
1,047
456
1,503
110
68
178
Total
11,466
7,408
18,874
11,004
7,656
18,660
8,939
5,204
14,143
SCOPE 1
Direct emissions
Scope1 covers direct emissions from owned
or controlled sources.
• We pursue energy efficiency and emissions
reduction opportunities.
• We explore electrified solutions to reduce
natural gas and fuel combustion.
*Greenhouse gas emissions are categorised into three
groups or 'Scopes' by the most widely-used international
accounting tool, the Greenhouse Gas (“GHG”) Protocol.
SCOPE 2 & SCOPE 3
Indirect emissions and Supply chain
Scope 2 covers indirect emissions from the
generation of purchased electricity, steam, heating
and cooling consumed by the reporting company.
Scope 3 includes all other indirect emissions that
occur in a company’s value chain.
•
Porvair manufactures thousands of different
products and components each year, which are
included in a wide range of customers’ products
and processes. We have looked at including a
Scope 3 measure into our targets but cannot see
a reliable way of capturing Scope 3 emissions for
the time being. This will be kept under review
pending wider industry initiatives to better
capture Scope 3 emissions.
Energy consumption by geography
(Geographical breakdown tCO
2
)
73%
Metal Melt Quality
14%
Aerospace & Industrial
13%
Laboratory
Total for year ended 30 November 2023
Energy consumption by division
(Energy consumption %)
US: 14,167
UK: 2,437
ROW: 2,270
Total for year ended 30 November 2023
Total gross emissions
18,874
(tCO
2
)
Total CO
2
gross emissions increased by 1%
to 18,874 tonnes in 2023.
Metal Melt Quality division energy
consumption
73%
73% of the Group’s emissions arise from the
Metal Melt Quality division.
MEASURING PERFORMANCE IN 2023
Workforce diversity
We are committed to developing a diverse and inclusive
workplace and to making progress in this area.
Porvair plc Annual Report & Accounts 2023
Strategic report
40
ESG report
continued
SOCIAL
People are critical to the successful
delivery of our strategy and our staff
are pre-eminent stakeholders in
the business. Wherever the Group
operates, we are committed to
creating shared value by engaging
with local communities, investing in
local supply chains and employing
local people.
We aim to attract and retain the
very best people by creating an
environment for colleagues based
on respect, personal growth,
skills development, reward and
recognition.
In 2023, we have continued
to develop our Employee
Engagement activities, gaining
valuable feedback on how we
perform and how we might
do better.
IN THIS SECTION
OUR PEOPLE
HEALTH, SAFETY
& WELLBEING
CUSTOMERS
& SUPPLY CHAINS
COMMUNITIES
Senior staff gender diversity
Male: 119
Female: 49
Employee gender diversity
Male: 658
Female: 318
Board gender diversity
Male: 4
Female: 2
Board ethnic diversity
White British: 4
Asian British: 2
Senior staff and Directors
29%
29% (2022: 28%) of the Group’s senior
staff and Directors are female.
Total staff
33%
33% (2022: 30%) of the Group’s
permanent workforce are female.
Total number in the workforce
976
(2022: 959)
The total Group permanent workforce as
at 30 November 2023.
Porvair plc Annual Report & Accounts 2023
Strategic report
41
Capabilities and skills
Porvair provides employment in a wide range
of disciplines associated with the design and
manufacture of specialist filtration, laboratory
and environmental technologies.
Diversity, equity and inclusion
It is the Group’s policy to recruit, train, promote
and treat all personnel on grounds solely based
on individual ability and performance. These
principles are applied regardless of gender,
sexual orientation, religion, age, nationality or
ethnic origin. The staff employed in each plant
are generally representative of the ethnic
diversity and backgrounds of the local
population surrounding the plant.
Applications for employment by disabled
persons are always considered in full, bearing
in mind the respective aptitudes and abilities
of the applicant concerned. In the event of
members of staff becoming disabled, every
effort is made to ensure that their employment
with the Group continues and the appropriate
training is arranged. It is the policy of the
Group that the training, career development
and promotion opportunities for a disabled
person should, as far as possible, be identical
to that of all other employees.
The Board and Senior Executives’ gender
and ethnic diversity are disclosed in the Report
of the Nomination Committee on page 62.
33% (2022: 30%) of the Group’s workforce
is female. In 2023 the number of female
permanent employees increased by 30 and
the number of male employees reduced by 13.
Employee turnover
The Board uses a Voluntary Quit Rate metric that
measures the voluntary resignations each year
as a percentage of the average workforce in
each plant. The metric is used in conjunction
with staff surveys to provide an indication of
employee satisfaction in each plant. The Group
Voluntary Quit Rate in 2023 was 9.0% (2022:
12.2%). The Voluntary Quit Rate of the median
plant was 6.9% (2022: 7.1%).
Greater focus on the wellbeing of employees has
had a beneficial impact on the Group Voluntary
Quit Rate in the year.
Training and development
Training and development programmes are
important both for our employees to fulfill their
potential and to help our business achieve its
goals. Much of our training uses the experience
found within our own operations.
Our training programmes mainly concern:
•
Technical skills and knowledge transfer;
•
Sponsorship for tertiary education
qualifications;
•
Team leadership;
•
Training apprentices;
•
Health & Safety; and
•
Quality.
A diverse and inclusive culture supports
performance and growth.
Case study
Skills development and training
In 2023, the Aerospace & Industrial
division began using an online training
tool in the US to conduct annual
compliance training. The next step is to
build engineering and manufacturing
modules specified by our own managers.
In the coming year we plan to roll out the
system to our UK staff.
MEASURING PERFORMANCE IN 2023
Voluntary Quit Rate
The Voluntary Quit Rate measures the
number of resignations per plant as a
percentage of the average number of
employees in each plant. The Board uses
this metric on a plant by plant basis in
conjunction with staff surveys as part of
its assessment of employee satisfaction.
Performance in 2023
The median plant Voluntary Quit Rate
remains in line with the prior year but the
Voluntary Quit Rate has fallen indicating
that the plants with the highest quit rates
in the prior year have improved this year.
Improved Employee Engagement
processes are having an impact on staff
retention particularly at the plants with
the highest staff turnover.
9.0%
The Group Voluntary Quit Rate was 9.0%
(2022: 12.2%).
6.9%
The median plant had a Voluntary Quit Rate
of 6.9% (2022: 7.1%).
Board’s Employee Engagement system
The Board seeks to maintain good channels
of communication with all staff. The Board
considers it important that the views and
concerns of staff are heard; that the objectives
of each business are understood; and that
standards of behaviour are shared by all.
Clear two-way communication is important.
The Board reviews every staff survey and all
comments arising along with other staff
suggestions. While almost all issues raised
are resolved at a local level, Board members
make sure they understand the views and
concerns of all staff members. Sally Martin,
the Group’s Senior Non-Executive Director,
is the designated Director responsible for
Employee Engagement.
The system works as follows:
•
Monthly reports are given to the Board from
each plant on the employee consultations
and staff communications. Reports include
all the enquiries that have been made by
employees and comments on how they have
been resolved.
•
At least annually all plants undertake a
confidential all-staff survey with 17 standard
questions plus any other questions relevant
locally. The results of these surveys and any
issues raised are presented to the Board.
•
Following each report to the Board, the
designated Non-Executive Director engages
with the employees in each plant to feed
back the Board’s views on the information
reported.
communication is two-way; Board discussion
and decision-making are influenced by the
reports received; and participation by all staff
is encouraged.
The Employee Engagement incentives
included in the General Managers’ bonus
arrangements and the two-way feedback,
between Sally Martin, the designated Non-
Executive Director, and the General Managers
has improved Employee Engagement. There
is much more social, training and team-
building activity being undertaken.
The Group maintains a small head office and
devolves authority to the individual plant
General Managers. This leads to different sites
doing Employee Engagement differently
depending on local issues; staff expectations;
site scale; and culture.
In our best plants we are very active in
Employee Engagement. All include two-way
communication; town hall meetings;
mechanisms for suggestions and ideas to
be heard; employee voice meetings and
many social, training and community outreach
events. Some of the smaller plants are also
good, their smaller scale mean that Employee
Engagement can be done with less formality
and more personal input from the General
Managers. There is still work to be done in one
or two plants to demonstrate that they are on
top of staff concerns, particularly where they
are dealing with a higher proportion of hourly
workers; a dual language shopfloor; and/or a
competitive local labour market making for
a less stable workforce.
Employee Engagement: additional aspects
•
Annual employee surveys are reviewed
with staff, who know that results are seen
at Group Board level.
•
Suggestion boxes allow comment and
feedback – anonymous if necessary – to be
fed through to management. Staff know that all
suggestions posted are reported to the Board.
•
All sites hold all-staff ‘town hall’ meetings
monthly or quarterly (depending on the
number of staff on the site). Staff concerns may
be raised at these meetings, and any issues
raised through employee surveys or suggestion
boxes are addressed at these meetings. These
meetings cover matters of concern to all
employees including:
–
Health & Safety matters;
–
Financial and operational metrics of the
plant and the Group;
–
Significant plant or HR developments;
–
Staff questions and answers including
responses to questions raised
previously, or comments on previous
questions from the Board;
–
Long service and other awards; and
–
Local community interaction.
•
Workers’ Council meetings. Some EU sites
have workers’ councils. The proceedings and
issues they raise are reported to the Board.
•
All senior management annual bonuses had
an Employee Engagement metric.
Review of Employee Engagement
effectiveness
The Board has raised the profile of Employee
Engagement at the Board and at each plant over
the last two years. It considers the Employee
Engagement system to be working well:
workforce views are fairly reflected;
Porvair plc Annual Report & Accounts 2023
Strategic report
42
ESG report
continued
Environmental
|
SOCIAL
| Governance
Case study
Town hall meetings
All plants hold town hall meetings
monthly or quarterly. As far as possible
these are
encouraged to be two-way
communications. The picture here
shows a town hall meeting underway
at the Metal Melt Quality division’s plant
in Hendersonville, US. In this plant town
hall meetings are held monthly and are
repeated during the day to enable
employees on different shiſts to
participate.
MEASURING PERFORMANCE IN 2023
Lost time accidents
(per 100
employees)
Keeping our employees safe is an
important responsibility. Our ongoing
focus is to create a safe working
environment, and embedding rigorous
safety processes and procedures is
essential.
In 2023, there were two lost time
accidents resulting in four days of lost
time. Both were minor manual handing
accidents, one in the Metal Melt Quality
division and one in
the Aerospace &
Industrial division. There were no
accidents in the Laboratory division.
Improvements in days lost this year result
from a continued focus on safe operations
in all our plants.
Performance in 2023
4
4 days were lost to accidents as a result
of two accidents.
Lost time accidents
(per 100 employees)
0.20
Days lost to accidents
(per 100 employees)
0.4
Porvair plc Annual Report & Accounts 2023
Strategic report
43
Safety in the workplace is an important responsibility
to protect employees and drive our business success.
2019
0.51
2020
1.30
2021
0.43
2022
2019
2020
2021
2022
0.10
2023
0.20
13
2
1.6
6.1
2023
0.4
Case study
Carolina Star and OHSA 10 training
Our plant in Hendersonville has qualified
as a Rising Star company in North Carolina.
The Star program recognises safety
excellence and allows participants to share
best practice. Participation exempts the
plant from random OHSA inspections.
OSHA 10-hour training provides our staff
in the Metal Melt Quality’ division’s US plants
with basic health and safety information.
It is part of the OSHA Outreach Training
Program, which explains serious workplace
hazards, workers' rights, employer
responsibilities and how to file an OSHA
complaint. In 2023 we trained 36
employees and will have all staff trained
by the end of 2024.
HEALTH, SAFETY & WELLBEING
Ensuring a safe and secure working
environment and supporting employee
wellbeing
The Group recognises its responsibilities
for the health and safety of its employees
and to the communities in which the Group
operates. By prioritising health and safety, and
reducing accidents and injuries, staff benefit
from safer working environments and the
Group benefits from settled and more secure
employees. Discretionary health and safety
benefits for employees include the availability
of gyms and onsite nursing and counselling
staff at certain operations. The Group’s
monthly Board reporting includes
a review of reportable accidents.
Health and safety responsibility is delegated
to senior managers within each business.
These officers perform regular reviews and
inspect the conditions in which the Group’s
employees work. In 2023, the Metal Melt
Quality division engaged a Health & Safety
consultant to look into its processes and
advise on ways to reduce its accident rate.
The lower number of OHSA (“Occupational
Health and Safety Administration”) reportable
accidents in 2023 shows the progress
that the plant has made in improving its
employee safety.
The Group’s insurers and insurance brokers
carry out a rolling programme of reviews of
the Group’s operations as part of their risk
assessments, and the recommendations of the
consultants are generally implemented in full.
Progress against our objectives in 2023
In 2023, there were two lost time accidents
resulting in four days of lost time. Both were
minor manual handing accidents, one in the
Metal Melt Quality division and one in
the
Aerospace & Industrial division. There
were no lost time accidents in the Laboratory
division. Improvements in days lost this
year result from a continued focus on safe
operations in all our plants. We continue to
focus on providing safe working conditions
for our employees and to seek improvements
to reduce accident risk.
Working with customers
The Group’s products are generally bespoke
for specific customers and often have a very
long product lifecycle. This naturally requires
the Group to build close relationships with its
customers.
A high percentage of the Group’s annual
revenue comes from repeat business from
existing customers. Most new product
introductions are developed with existing
customers. When new customers are gained it
is often after a long development period over
which a close relationship has developed,
and a long-term relationship is expected.
Particularly in the aerospace and energy
sectors, the Group builds relationships with
the immediate customer for the product and
also with the ultimate end user or manufacturer,
who is often the party that certifies the product.
For example, the airframe manufacturer will be
an important stakeholder but the customer will
usually be a sub-assembly manufacturer.
Responsible and resilient supply chains
Developing mutually beneficial and long-term
relationships with our suppliers and building
resilience, quality and efficiency across our
supply chain is a fundamental contributor
to our customer offer and long-term
sustainability.
The Group has an extensive network of
suppliers and subcontractors, many of whom
are critical to the manufacture of specific parts.
The Group has a stable supplier base. It seeks
to increase this base by extending the number
of suppliers only where there are perceived to
be risks of under capacity or resilience in its
existing supply chain. Suppliers are generally
only removed from the approved list for
persistent quality or delivery failures.
Wherever possible, the Group seeks local
suppliers to fulfil its requirements. The Group
selects its suppliers carefully. As part of
building a long-term relationship with its
critical suppliers, the Group works closely with
them to ensure that the quality and delivery
standards required by the Group are achieved.
Porvair plc Annual Report & Accounts 2023
Strategic report
44
ESG report
continued
Environmental
|
SOCIAL
| Governance
Case study
Seal Analytical customer focus
Seal Analytical's highly qualified chemists
use a fully equipped demonstration
laboratory to train customers remotely,
reducing the time and expense of a
site visit. Through the use of a suite of
broadcast equipment, Seal’s chemists can
be “virtually“ in the customer’s laboratory,
using the same Seal instruments and
soſtware as the customer. This makes
installations, training and troubleshooting
faster and more accessible.
Meeting evolving customer needs and
exceeding their expectations’ with
product innovations, quality, efficiency
and service and the way we conduct our
business, is a fundamental part of our
operating model and our values.
Porvair plc Annual Report & Accounts 2023
Strategic report
45
Porvair and the local community
We aim to contribute positively to our local
communities and society. Our products
and services support critical global industries
and our operations around the world play
a role in local economies through job creation;
procurement; operating responsibly and
ethically; and engaging directly. The
management of each operation is aware
of its role within its local communities.
They seek to recruit locally and retain a
skilled local workforce and are encouraged
to build relationships with local community
organisations. The workforce composition
generally mirrors the diversity of the local
population.
The Aerospace & Industrial division has
contributed to local charities based close to
its UK plant to support disadvantaged local
people and communities. In the US, it has
played an active role in encouraging school
children to consider careers in engineering,
by providing sponsorship to a robot building
challenge and contributing to Chamber of
Commerce careers days for senior high school
children. The division is a significant employer
in the Caribou area and one of the few
businesses in the area to be expanding its
workforce. It maintains close relations with
the local authorities. It has been the beneficiary
of local funding designed to promote
employment and has joined programmes
to promote local businesses and services in
the area.
The Laboratory division has contributed to a
number of charities in support of local children.
Employees also participated in events and
made donations to charities supporting cancer
relief. Seal Analytical has a particular focus on
water charities based locally to its plant in
Mequon, US. The Metal Melt Quality division
in the US has an active programme of support
for local charities.
Selee Corp, Hendersonville
North Carolina, US
The Metal Melt Quality division’s plant in
Hendersonville, NC, supports the United
Way of Henderson County (“UWHC”), a
charity local to its main plant; the division
makes donations and employees make
payroll deductions to donate to the
charity. Employees participate in projects
to repair homes and provide facilities for
the disadvantaged in the community and
this year supported the cause with several
teams in their annual golf day.
Other charity work included a food drive
providing 16 families with a Thanksgiving
to remember, and donations to a local
project to raise global awareness about
suicide.
Seal Analytical, Mequon
Wisconsin, US
Seal Analytical has a particular focus on
water charities based locally to its plant
in Mequon US. Teams from the plant
have helped clean a local river through
the Milwaukee Riverkeeper Adopt a
River Program and have volunteered
at the Mequon Nature Preserve to help
remove invasive species to encourage
native trees and plants.
Local investment and support helps us to build strong
relationships in the communities where we operate, and
contributes to local sustainable development.
We aim to contribute positively to our
local communities and society.
GOVERNANCE
Strong governance is fundamental
to building a resilient and successful
organisation. Robust policies,
standards and management systems
guide our operations to address risks
and opportunities and enable us to
measure our performance and
commitments over time.
We believe that strong ESG
performance can be a source of
competitive advantage. Transparent
and robust governance, safe and
responsible operations, continuous
improvement and innovation are key
to delivering our strategy.
Porvair plc Annual Report & Accounts 2023
Strategic report
46
ESG report
continued
Strong governance and ethical practice
are essential to Porvair.
Non-Financial and Sustainability
Reporting requirements
We will continue to comply with the
Non-Financial and Sustainability Reporting
requirements contained in Section 414CB
of the 2006 Companies Act.
Section 172(1) Reporting
Porvair is required to provide information
on how the Directors have performed their
duty under Section 172 of the Companies
Act 2006 to promote the success of
Porvair, including how the interests of
Porvair’s key stakeholders have been taken
into account by the Directors.
TCFD Reporting
Aligning our reporting to the TCFD
recommendations informs our key
stakeholders of the climate-related issues
that may impact Porvair.
Anti-bribery and corruption policy
The Group prohibits all forms of bribery and
corruption within its business and complies
with the requirements of all applicable laws
designed to combat bribery and corruption.
The Group requires all employees, agents,
intermediaries and consultants to conduct
themselves in accordance with the Group’s
anti-bribery and corruption policy. The Group
conducts periodic compliance reviews and
professional training for staff who have contact
with customers and suppliers.
Modern Slavery
The Group has zero tolerance of slavery and
human trafficking in all their different forms in
any part of its business and in its supply chain.
This approach reflects a commitment to act
ethically and responsibly in all business
relationships and to ensure that slavery and
human trafficking are not present in any part
of its business or in its supply chain.
A copy of the Group’s policy on Modern
Slavery is available on the Group’s website at
.
Human rights
The Group supports and is committed to
upholding the UN Guiding Principles on
Business and Human Rights, and the core
labour standards set out by the International
Labour Organisation.
The Group is aware of its requirements to
respect human rights in all jurisdictions in
which it operates. It pays particular attention
to its responsibilities in its operations in China
and India. The Group has nothing further
to disclose.
Gender Pay Gap
The Porvair Filtration Group, the Group’s
principal UK employer, discloses its Gender
Pay Gap information on its website –
.
ESG governance and oversight
The Board is collectively responsible and
accountable for the delivery of our strategy and
ensuring we sustain our ESG commitments
and balance the interests of all our stakeholders
over the long-term.
The Board is committed to maintaining
high standards of corporate governance and
ensuring values and behaviours are consistent
across the business. The Board expects steady
and continuous improvement in the Group’s
governance procedures.
The Board as a whole has significant ESG
and Climate Change related experience.
The Board takes direct responsibility for
developing and implementing ESG policies
and procedures for the whole Group. The
Group CEO is the member of the Board
responsible for delivery of the Group’s
ESG compliance.
The 2018 UK Corporate Governance code
applied to the Group from 1 December
2019. The Board complied with all aspects
of the Code throughout the year ended
30 November 2023.
More details of the Group’s approach to
corporate governance are given in the Group’s
Report and Accounts section on Corporate
Governance on pages 59 to 61.
Risk management
Risk management and review forms a core
part of each divisional quarterly review, with
risk assessments and actions arising discussed
with each management team. Implementation
of mitigation procedures is monitored through
quarterly reviews and the internal audit
process. The outputs from these reviews are
fed through in regular Board reports where
key issues are discussed. Further details are
given on pages 22 to 25 and 60 and 61.
CUSTOMERS
•
We seek to build long-term stable relationships
with our customers.
•
Our products are usually bespoke for specific
customers and are designed and tested in
partnership with those customers.
•
Our products oſten have long lifecycles
and our customers provide us with stable
revenues.
•
Through research and development, we seek
to offer customers regular upgrades and
improvements to the products we offer.
•
We operate according to strict anti-bribery and
corruption policies.
SUPPLIERS
•
The Group has a stable supplier base and
seeks to build long-term relationships.
•
The Group seeks local suppliers to fulfil
its requirements.
•
Many of our suppliers are critical to the
manufacture of specific parts.
•
The Group works closely with its suppliers
to ensure quality and delivery standards.
•
We operate according to strict anti-bribery and
corruption policies.
EMPLOYEES
•
We provide a broad range of roles in design,
manufacture, sales and administration.
•
We have both formal and informal
communication processes.
•
We recruit, train and develop staff solely
on the basis of ability.
•
Our employees generally reflect the ethnic
diversity of the local population close to
each plant.
•
We operate in accordance with local laws and
customs, and with due regard for human rights.
•
We meet local living wage requirements.
COMMUNITIES & THE ENVIRONMENT
•
Our staff profiles mirror the diversity of
the local communities around each plant.
•
We seek to use local suppliers where possible.
•
The local environment is important to us
and we take care to keep our waste to
a minimum.
•
Our employees are active in their local
communities and contribute time and
money to local charities.
SHAREHOLDERS
•
We seek to provide shareholders with
informative and comprehensive
communications.
•
We seek to publish results promptly, usually
within 10 weeks for year end results and
5 weeks for interim results.
•
The Executive Board members meet regularly
with our key investors to discuss Group
performance and to hear their views.
•
Board members make themselves available to
meet with shareholders and potential investors
when requested.
Porvair plc Annual Report & Accounts 2023
Strategic report
47
How the Board considers stakeholder interests
in the
s172 Statement
on pages: 48 to 50.
Effective engagement with stakeholders and
transparent reporting promotes the success of the
Group. Our corporate governance framework aims
to sustain stakeholder value over the long-term.
STAKEHOLDERS AND SECTION 172
STATEMENT
Understanding the needs and priorities of
our key stakeholders and building strong
and positive relationships is critical to our
success. Stakeholder engagement takes
place across the Group, operationally by
our divisional teams, Group management
and by the Board.
The Board’s approach to decision-making
s172(1) Reporting
The Companies (Miscellaneous Reporting)
Regulations 2018 (“2018 MRR”) require
Directors to explain how they considered
the interests of key stakeholders and the
broader matters set out in Section 172(1) (A)
to (F) of the Companies Act 2006 (“s172”)
when performing their duty to promote the
success of the Company under s172. This
includes considering the interests of other
stakeholders which will have an impact
on the long-term success of the Company.
This s172 Statement reviews the principal
decisions made by the Board of Directors
and how the Directors have engaged with
stakeholders.
This s172 Statement focuses on matters of
strategic importance to the Group, and the
level of information disclosed is consistent
with the size and the complexity of the
business.
General confirmation
of Directors’ duties
The Board has a framework for determining
the matters within its remit and has approved
Terms of Reference for the matters delegated
to its committees. Certain financial and
strategic thresholds have been determined
to identify matters requiring Board
consideration and approval and delegated
authorities are set out in the Group’s
reporting and accounting manual.
When making decisions, each Director
ensures that they act in the way they
consider, in good faith, would most likely
promote the Company’s success for the
benefit of all of its stakeholders.
s172(1) (A) – The likely consequences
of any decision in the long-term
The Directors consider the long-term
consequences of their decisions with
reference to their understanding of the
business and the markets in which it operates.
•
Porvair aims to develop specialist filtration,
laboratory, and environmental
technologies for the benefit of all
stakeholders.
•
The Board reviews its strategy each year,
which drives a medium-term review of the
likely outlook for the Group as described
in the Group’s viability assessment (See
pages 26 and 27).
•
In considering its long-term development,
the Board will allocate capital and
resources according to strategic priorities.
These include:
–
investments in research and development,
sales and marketing, and production
capabilities;
–
capital expenditures to boost organic
growth; and
–
acquisition investments to increase
technical expertise or routes to market.
The Group seeks to balance the short-term
costs of these investments with their likely
future benefit.
s172(1) (E) – The desirability of the
company maintaining a reputation for
high standards of business conduct
•
All of the Group’s operations maintain
ISO9001 quality standards as a minimum,
with certain plants conforming to quality
standards specific to their market (e.g.
Aerospace).
•
The Board monitors compliance with
local laws and standards and has policies
on modern slavery, anti-bribery and
corruption, and human rights.
•
Remuneration arrangements for
senior management are tied to Group
corporate and social responsibility
standards which specify four areas
of focus: business integrity and ethics;
people; HSE performance; and
relationships and community impact.
STAKEHOLDER
ENGAGEMENT AND
DECISION-MAKING
Porvair plc Annual Report & Accounts 2023
Strategic report
48
Section 172 Statement
This s172 Statement focuses on matters of strategic importance to
the Group. It sets out the Board’s approach to decision-making; its
stakeholder engagement; and key decisions taken in 2023.
(A) –The likely consequences of any
decision in the long-term.
(B) –The interests of the company’s
employees.
(C) – The need to foster the company’s business
relationships with suppliers, customers and others.
(D) –The impact of the company’s operations
on the community and the environment.
(E) –The desirability of the company maintaining
a reputation for high standards of business conduct.
(F) –The need to act fairly as between members
of the company.
Key to s172 considerations
The Board’s approach to stakeholder engagement
Porvair plc Annual Report & Accounts 2023
Strategic report
49
s172(1) (B) – The interests of the
company’s employees
Employees are fundamental to our business.
Success depends on attracting, retaining
and motivating employees by providing:
•
Fair pay and benefits;
•
Training and development opportunities;
•
A workplace environment with a high
regard for health and safety procedures;
•
A broad range of roles in engineering,
manufacture, sales and administration;
•
Formal and informal communication
processes; and
•
Staff development solely on the basis
of ability.
Our employees reflect the ethnic diversity
of the local population close to each plant.
We operate in accordance with local laws and
customs and with due regard for human rights.
The Directors recognise that our pensioners,
though no longer employees, also remain
important stakeholders.
More information on this can be found
within our report on Employee Engagement
(See pages 40 to 45).
In their decision-making, the Directors are
careful to properly consider the interests
of all stakeholders.
s172(1) (C) – The need to foster the
company’s business relationships with
suppliers, customers and others
Delivering our strategy requires mutually
beneficial relationships with suppliers,
customers and regulatory bodies. The Board
expects all such relations to be conducted
appropriately and in conformity with Group
policies.
Relationships with customers
•
Because of the nature of its products,
the Group typically has long customer
relationships.
•
Most new product introductions are
developed with existing customers as a
means of deepening the relationship
with a valued client.
•
Senior management will engage personally
with all key commercial contacts to ensure
good communications.
•
The Group rarely makes significant changes
to its terms and conditions, valuing stability
in its commercial relationships.
Relationships with suppliers
•
The Group typically has long relationships
with its suppliers.
•
The Board considers supplier resilience
as a critical strategic risk and reviews key
supply arrangements in its risk
management process.
•
The Group works closely with its suppliers
to ensure that quality and delivery standards
are met.
•
Senior management engage personally
with all key commercial contacts to ensure
good communications.
•
The Group rarely makes significant changes
to its terms and conditions, valuing stability
in its commercial relationships.
Relationship with Group operating
companies
•
The Board has overall responsibility for
the control and management of Group
strategy and performance.
•
The Group believes in giving management
teams autonomy such that most decisions
can be made close to the stakeholders
affected. Only when it is more efficient are
activities managed centrally.
•
The Board has established a framework
of controls encompassing procedures
applicable to all businesses that
are subject to executive review.
Relationship with regulatory bodies
The Board encourages its operations to
engage constructively with regulatory bodies
and to maintain regulatory approvals through
the relevant audit processes.
s172(1) (D) – The impact of the company’s
operations on the community and the
environment
•
The development of safe and responsible
operations is fundamental to the Group’s
purpose.
•
The Board regularly reviews reports on
the Group’s impact on the environment.
•
The Board regularly reviews reports on the
Group’s community involvement projects.
•
All Group operations draw staff, ancillary
services and supplies from the local
economies wherever practical.
•
The Board monitors key environmental
metrics including carbon intensity; waste
and landfill; and use of water.
s172(1) (F) – The need to act fairly as
between members of the company
•
The Board maintains a regular dialogue
with its members through meetings with
investors, its AGM, and comments received
in relation to its regulatory releases and
publications.
•
The Board publishes results promptly,
usually within 10 weeks for year end results
and 5 weeks for interim results.
•
The Board provides briefings to analysts and
media outlets, who in turn provide an
independent perspective on the Company
for the benefit of their clients and readers.
•
The Board uses judgement and analysis
of information gained through this
information exchange to act fairly as
between the Company’s members.
•
The Board seeks to provide shareholders
with informative and comprehensive
communications.
•
The Executive Board members meet
regularly with our key investors to discuss
Group performance and to hear their views.
•
Board members make themselves available
to meet with shareholders and potential
investors when requested.
Principal decisions taken by the Board in 2023
1. Decisions to acquire Ratiolab,
EFC and certain business and
assets of HRW.
Decisions taken in January, July and
November 2023
The outcome
The Board made three acquisition decisions
in 2023 in support of its stated strategy of
developing specialist filtration, laboratory
and environmental technology businesses.
It acquired certain business and assets of
HRW in March 2023 as a bolt-on to the
industrial filtration unit in Boise, ID; Ratiolab
in July 2023 to expand the footprint of the
Laboratory division; and EFC, a bolt-on for
the Aerospace & Industrial division, that
completed on 4 December 2023.
How stakeholders were considered
All three deals expand the capabilities and
capacity of the divisions in which they sit, and
in so doing strengthen the career prospects
and continued employment for both existing
Porvair staff and those members of staff joining
the Group through acquisition. The same is
true of the customers and suppliers of the
acquired businesses who will benefit from
association with a larger Group that offers
a stronger financial base. Synergies in
production and distribution will, over time,
benefit wider Group stakeholders including
shareholders. The acquisitions were funded
from the Group’s cash resources, leaving
funds available to resource the pension fund
and to continue to deliver a progressive
dividend for shareholders.
2. Decisions to pay the interim
dividend and recommend the
final dividend for 2023.
Decisions taken in June 2023 and
February 2024
The outcome
Prior to finalising the Group’s interim and
final accounts the Board considered whether
it was appropriate to raise the interim and
final dividend. The Board concluded that
the interim dividend should be raised by
0.1 pence to 2.0 pence and recommended
that the final dividend should be increased
by 5.3% from 3.8 pence to 4.0 pence.
How stakeholders were considered
The Board has a stated policy of paying a
progressive dividend. The Board concluded
that the dividend was sufficiently well covered;
that there were adequate distributable
reserves; and the Group had access to
sufficient finance. Staff, customers, suppliers
and the future investment opportunities
for the business were considered to be
unaffected by the decision to pay the
dividend and shareholders received the
income from the Group that they would
have expected.
3. Approval of Porvair’s strategic
plan for 2024 to 2027.
Decision taken in November 2023
The decision
The Board conducts a strategic review
each year which considers the strategic
direction of the Group and its immediate
and medium-term priorities. Four year plans
are considered.
How stakeholders were considered
The Group’s strategic framework specifically
considers the benefits to all stakeholders.
Particular emphasis is given to shareholders,
staff and pensioners.
Porvair plc Annual Report & Accounts 2023
Strategic report
50
Section 172 Statement
continued
DEFINITION OF PRINCIPAL DECISIONS
We define principal decisions taken by the Board as those decisions in 2023 that were of a
strategic nature and that are significant to any of our key stakeholder groups. As outlined in
the FRC Guidance on the Strategic report, we include decisions related to capital allocation,
dividend policy and strategy.
The policies mentioned above form part of the Group’s policies, which act as the strategic link between our Purpose and how we manage our
day-to-day business. During the year, the Board determined that the policies remain appropriate and support its long-term sustainable success.
This Strategic report was approved by the Board.
By order of the Board
Chris Tyler
Company Secretary
2 February 2024
Porvair plc Annual Report & Accounts 2023
Strategic report
51
s172 (1) Statement and Stakeholder Engagement
on pages: 48 to 50
ESG report on pages: 28 to 47
• Summary statement
• Environmental performance
• Taskforce on Climate-related Financial
Disclosures (“TCFD”)
Reporting requirement
Policies and standards which govern our
approach
Additional information and cross-referencing
ESG report on pages: 30 to 39
TCFD report on page: 32
Key Performance Indicators on page: 21
ESG report on pages: 38 to 43
• Employee Engagement
• Whistleblowing policy
• Health & Safety policy
• Diversity policy
• Training and development
• Modern Slavery Act statement
• Human rights
s172 (1) Statement and Stakeholder Engagement
on pages: 48 to 50
ESG report on pages: 40 to 46
Governance report on pages: 59 to 61
ESG report on page: 46
• Porvair in the community
• Relationship with customers and suppliers
s172 (1) Statement and Stakeholder Engagement
on pages: 48 to 50
ESG report on pages: 44 and 45
• Anti-bribery and corruption policy
• Risk assessment
ESG report on page: 46
Principal risks and uncertainties on pages: 22 to 25
• How it links to strategy and delivers value
to stakeholders
• Relevant key performance indicators
Consistent strategy on pages: 2 to 5
Chief Executive’s report on pages: 8 to 15
Stakeholders
Environmental matters
Employees
Respect for human rights
Social matters
Anti-bribery and corruption
Description of principal risks and impact
on business activity
Description of the business model
Non-financial key performance indicators
NON-FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT
This section of the Strategic report constitutes the non-financial and sustainability
information statement of Porvair plc, produced to comply with sections 414CA and
414CB of the Companies Act. The information listed in the below table is incorporated
by cross reference.
Key to Board Committee Membership
Executive and Non-Executive Directors
Audit Committee
Nomination Committee
Remuneration Committee
Blue background denotes Committee Chair
Non-Executive Tenure
Composition of the Board
Executive Directors
Non-Executive Directors
Non-Executive Chair
2
3
1
0 – 3 years
3 – 9 years
2
2
John Nicholas
Independent Non-Executive Chair
Appointed to the Board in October 2017,
he became Chair in April 2018.
External appointments:
John was Non-Executive Chair of Diploma PLC
until January 2022. He was previously Senior
Non-Executive Director of Mondi plc, Rotork plc
and Ceres Power Holdings plc and Chair of the
Audit Committee of Hunting plc. He was Group
Finance Director of Tate & Lyle plc from 2006 to
2008 and, prior to that, Group Finance Director
of Kidde plc from its demerger from Williams plc
in 2000 until its acquisition by United
Technologies in 2005. John was a member
of the UK Financial Reporting Review Panel
for six years until April 2015.
Relevant experience:
John is an experienced Non-Executive Director
with broad experience in manufacturing and
service industries. John brings strong leadership
skills and provides an effective commitment to
the Board. John holds an MBA from Kingston
University and is a Chartered Certified Accountant.
Committee membership:
Chair of the Nomination Committee and member
of the Remuneration Committee.
Ben Stocks
Group Chief Executive
Appointed to the Board in February 1998.
Previous career and external appointments:
Ben was previously Managing Director of
the Speciality Packaging Division of Carnauld
Metal Box. He is Senior Independent
Non-Executive Director of the Aerospace
Technology Institute and Chair of its
Remuneration Committee.
Relevant experience:
Ben has been Group Chief Executive since
joining the Board in 1998. He leads the Group’s
management and has been instrumental in
delivering the Group’s consistent strategy and
growth. Over his career with the Group, he has
acquired considerable domain knowledge and
extensive filtration market knowledge. He has an
MBA from INSEAD.
Committee membership:
None.
A
N
R
N
R
James Mills
Group Finance Director
Appointed to the Board in April 2021.
Previous career:
James was previously a divisional Finance
Director for Ricardo plc. Prior to Ricardo, he was
responsible for group reporting at G4S plc.
Relevant experience:
James brings significant expertise and relevant
experience in strategic financial management for
engineering led businesses. He is a Chartered
Accountant, who qualified with KPMG.
Committee membership:
None.
Porvair plc Annual Report & Accounts 2023
Governance
52
Board of Directors
The Board is collectively responsible for the
long-term success of Porvair and the delivery
of sustainable stakeholder value.
Board changes during FY23 and the
year to date:
• Ami Sharma was appointed to the Board
as an Independent Non-Executive Director
on 1 January 2023. He became Chair of the
Audit Committee on 1 February 2023.
• Jasi Halai resigned from the Board on
31 January 2023.
• Sarah Vawda was appointed to the Board
as an Independent Non-Executive Director
on 26 June 2023.
Further information on the appointments and
Board succession planning activities can be
found on pages 56 and 62.
Board diversity
It is the Board’s policy to maintain a small Board
of five or six Directors with a minimum of two
male and two female Directors. Following the
resignation of Jasi Halai on 31 January 2023,
the Board was not compliant with this policy
until the appointment of Sarah Vawda on
26 June 2023.
The Board diversity throughout the
year was:
Gender
Ethnicity
White
Asia/
British or
Asian
Male
Female
other White
British
1 Dec 2022 to
31 Dec 2022
60%
40%
4
1
1 Jan 2023 to
31 Jan 2023
67%
33%
4
2
1 Feb 2023 to
25 Jun 2023
80%
20%
4
1
26 Jun 2023 to
30 Nov 2023
67%
33%
4
2
Sally Martin
Senior Independent Non-Executive Director
Appointed to the Board in October 2016.
External appointments:
Sally is independent non-executive director
of Sandfire Resources Limited, a company listed
on the Australian Securities Exchange. She
was, until 2021, Supply and Trading Operations
Manager for Europe & Africa in the Shell
International Trading and Shipping Company
Limited.
Relevant experience:
In a thirty year career with Shell, Sally built
a strong track record in strategy; M&A;
international business development; and
engineering and operations. She brings a
particular focus on safety management, large
project delivery and managing large and
dispersed teams. Her extensive team
management skills make her ideally suited to
lead our Employee Engagement processes and
chair the Group’s Remuneration Committee.
She is a member of the Australian Institute of
Company Directors.
Committee membership:
Chair of the Remuneration Committee
and member of the Audit and Nomination
Committees. Designated Board member
for Employee Engagement.
Sarah Vawda
Independent Non-Executive Director
Appointed to the Board in June 2023.
External appointments:
Sarah is the Senior Independent Non-Executive
Director and Chair of the Audit Committee of
Access Intelligence plc, an AIM listed reputation
management, marketing and communications,
soſtware as a service business; Non-Executive
Director of Hamlet Protein A/S, a private equity
backed Danish specialty protein business; and
Non-Executive Director and Chair of the
Remuneration and Nomination Committees
of Noveltech Private Feeds Ltd (India), a private
equity backed Indian animal nutrition business.
She has previously held senior executive roles
within global multinational companies including
PowerGen plc, Corus Group plc, Christian
Salvesen plc, Provimi SA and Johnson Matthey plc
and several other Non-Executive and Trustee roles.
Relevant experience:
Sarah brings a wealth of experience in corporate
development, strategy, M&A, finance and
business transformation gained within public,
private equity and entrepreneurial companies
in diverse industries including energy, metals,
chemicals, logistics and manufacturing. She has
a particular focus on change management,
complex transactions, strategic reviews, diversity
and leading large multi-disciplinary teams to
deliver success. She is a Chartered Accountant.
Committee membership:
Member of the Audit, Remuneration and
Nomination Committees.
A
N
R
A
N
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Ami Sharma
Independent Non-Executive Director
Appointed to the Board in January 2023.
External appointments:
Ami is currently Group Chief Financial Officer
and Company Secretary of SDI Group plc,
an AIM listed manufacturing group. He was
Group CFO at FTSE 250 listed Ultra Electronics
Holdings plc, an international aerospace and
defence group, from 2016 to 2019. He was
CFO of Gibbs and Dandy plc from 2005 to
2009. Ami has, in the past, held senior finance
roles at Senior plc and Saint Gobain Building
Distribution and was an audit manager
with KPMG.
Relevant experience:
Ami has over 30 years’ experience in public
and private companies with particular focus
on international manufacturing, high growth
businesses, corporate transactions, driving
operational improvements and raising finance.
This track record makes him ideally suited to
Chair the Audit Committee. He is a Chartered
Accountant.
Committee membership:
Chair of the Audit Committee and member of
the Remuneration and Nomination Committees.
A
N
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Porvair plc Annual Report & Accounts 2023
Governance
53
Dear shareholder
The Board is committed to maintaining high standards of corporate
governance and ensuring values and behaviours are consistent across
the business. The Board expects steady and continuous improvement
in the Group’s governance procedures.
In the Governance section of this report, the Board sets out the
information, policies and procedures adopted by the Group to ensure
compliance with the relevant governance codes and financial law.
The Governance section includes the Directors’ Report, the Corporate
Governance Report, the Report of the Nomination Committee, the
Report of the Audit Committee and the Remuneration Report and
Remuneration Policy.
The Board
The Board consists of four Non-Executive Directors and two Executive
Directors. The Board provides strategic leadership and guidance with
the aim of allowing the Executive team to develop the business
profitably within the framework of risk management and compliance.
The Board has established three Committees to advise the Board:
•
The Audit Committee advises the Board on matters relating to internal
controls and financial reporting of the Group.
•
The Remuneration Committee determines and recommends the
framework and policy for the remuneration of the Executive Directors.
•
The Nomination Committee provides a process and procedure for
the appointment of new Directors.
The Nomination Committee and the Remuneration Committee
comprise all of the Non-Executive Directors. As Chair of the Group,
I do not sit on the Audit Committee.
I confirm that, following performance evaluation of each Non-Executive
Director, their performance continues to be effective with appropriate
commitment to the role.
Compliance with the Code
The Board complied with all aspects of the 2018 UK Corporate
Governance Code throughout the year ended 30 November 2023.
Developments in 2023
Ami Sharma was appointed as an Independent Non-Executive Director
with effect from 1 January 2023. Jasi Halai resigned from the Board
on 31 January 2023 at which point Ami became Chair of the Audit
Committee. Sarah Vawda was appointed as an Independent
Non-Executive Director with effect from 26 June 2023.
At the AGM on 14 April 2024 the Board will be requesting
shareholders approve:
•
A new Remuneration policy for the next three years. No structural
changes are proposed but the Remuneration Committee is
concerned that the current approach of providing fixed pay levels
which are below market median requires it to propose an increase
in the annual bonus policy maximum from 100% of salary to 125%
(although there is no intention to increase the opportunity for
FY2024).
•
New rules for the Group’s Save As You Earn scheme. The rules
approved in 2014 have now expired and new rules on substantially
the same terms will be proposed for a further 10 years term.
The Group made progress in three specific areas of Governance
in 2023:
•
The Board was strengthened from five to six Directors.
•
The Group discloses the ethnic diversity of its Directors and
Executive management for the first time.
•
Employee Engagement processes were refined throughout the
Group with the benefit of several years of tracking employee
satisfaction and measuring the Voluntary Quit Rate. Improvements
in Employee Engagement now form part of all general managers’
incentive schemes.
John Nicholas,
Chair
2 February 2024
Transparent reporting
Porvair has a clear purpose; integral to delivering it is being a
socially responsible company that demonstrates strong ethical
behaviour within a framework of transparent and robust
governance.
Section 172 Statement
In line with the reporting requirements of the 2018 UK Corporate
Governance Code, our stakeholder engagement section
describes how our stakeholders, and the matters set out in
Section 172 of the Companies Act 2006, have been considered
in Board discussions and decision-making. The Board actively
engages with our shareholders, employees and wider stakeholder
groups when making decisions, and considers the impact of
Group activities on the community, environment and its reputation.
Compliance with the UK Corporate Governance Code 2018
The principles set out in the UK Corporate Governance Code
2018 (the “Code”) emphasise the value of good corporate
governance for long-term sustainable success. The Board applied
the principles and complied with all provisions of the Code
throughout the year ended 30 November 2023.
Further details on how we have applied the principles set out in
the Code can be found as follows:
Section 1: Board leadership and Company purpose on page: 59.
Section 2: Division of responsibilities on page: 59.
Section 3: Composition, succession and evaluation on
pages: 60, 61 and 62.
Section 4: Audit, risk and internal control on pages:
60, 61, 63 and 64.
Section 5: Remuneration on pages: 65 to 82.
Porvair plc Annual Report & Accounts 2023
Governance
54
Chair’s introduction to governance
The Board provides effective and strategic
leadership to the Group within a framework
of robust corporate governance.
Porvair plc Annual Report & Accounts 2023
Governance
55
Porvair’s governance structure
Good governance continues to provide the framework for effective delivery
of our strategy. The Board is committed to maintaining very high standards
of corporate governance and ensuring values and behaviours are consistent
across the business. The Board provides strategic leadership and guidance
with the aim of allowing the Executive team to develop the business
profitably within the framework of risk management and compliance.
The Board
Provides strategic leadership to the Group within a framework of
robust corporate governance and internal control. It monitors the
culture, values and standards that are embedded throughout our
business, to deliver long-term sustainable growth for the benefit
of our shareholders and other stakeholders.
Audit Committee
Assists the Board by reviewing: the integrity
of the Group’s financial reporting; the quality
of the external and internal audit review
processes; the appropriateness of the
Group’s internal controls; and compliance
with a range of financial, governance and
other compliance issues.
Remuneration Committee
Sets policies and levels of remuneration,
which encourage actions by management
that are in the long-term interests of the
Company and its stakeholders.
Nomination Committee
Provides a transparent process and
procedure for the appointment of new
Directors to the Board. The Nomination
Committee comprises all of the
Non-Executive Directors and is chaired
by the Chair of the Company.
Executive Directors and Senior Management
Responsible for the implementation of the Board’s strategy and
day to day management of the business. Management of each plant
is devolved to plant General Managers and their teams.
Aerospace & Industrial
Division
Porvair Filtration Group
Royal Dahlman
European Filter Corporation
Seal
Analytical
UK, US, Germany
& Hungary
Kbiosystems
Porvair Sciences
Finneran
Ratiolab
US, Germany, UK,
Netherlands & China
UK, US, Netherlands,
Belgium & India
Selee
US & China
Laboratory
Division
Metal Melt Quality
Division
Board Committees
Group Divisions & Operating Companies
Nomination Committee report on page: 62.
Audit Committee report on pages: 63 and 64.
Remuneration report on pages: 65 to 82.
The Directors are pleased to present their Annual Report and the
audited accounts of the Group for the year ended 30 November 2023.
The Company
Porvair plc is a public limited company incorporated in England and
Wales and domiciled in the UK, with a listing on the London Stock
Exchange under the symbol PRV. The address of its registered office
is 7 Regis Place, Bergen Way, King’s Lynn, Norfolk , PE30 2JN.
Business review
The business review is covered in the Strategic report. The Group’s
purpose, strategy, objectives, key performance indicators, likely future
developments, and risks and uncertainties are discussed throughout the
report.
Dividends
An interim dividend of 2.0 pence per share (2022: 1.9 pence per share)
was paid on 23 August 2023. The Directors recommend the payment
of a final dividend of 4.0 pence per share (2022: 3.8 pence per share)
on 5 June 2024 to shareholders on the register on 3 May 2024; the
ex-dividend date is 2 May 2024. This makes a total dividend for the
year of 6.0 pence per share (2022: 5.7 pence per share).
Directors and their interests
The names and biographical details of the Directors are set out on
pages 52 and 53. Ami Sharma joined the Board on 1 January 2023, Jasi
Halai resigned from the Board on 31 January 2023, Sarah Vawda joined
the Board on 26 June 2023, all other Directors served throughout the
year. In accordance with best practice, it is the Board’s policy that all
Directors, who continue to serve, should offer themselves for re-election
each year.
The appointment and replacement of Directors is governed by the
Articles, the Companies Act 2006, the UK Corporate Governance
Code and related regulation and legislation applying to UK listed
companies. The Articles require there to be a minimum of three
Directors (and permit a maximum of 15) and provide that the business
of the Company shall be managed by the Board of Directors, which may
exercise all powers of the Company. The Board of Directors may make
such arrangements as they see fit to delegate those powers, except that
the Board retains specific authority over the matters reserved for the
Board, which are summarised in the Role of the Board section in the
Corporate governance report on page 59.
The Executive Directors have service contracts that include a rolling
12 month notice period. The Non-Executive Directors have letters of
appointment that include a rolling three month notice period unless
they are not re-elected at the Annual General Meeting, in which case,
the Non-Executive Director will resign immediately.
During the year, and up to the date of this report, the Group maintained
insurance providing liability cover for its Directors.
Details of all the beneficial and non-beneficial interests of the Directors
in the shares of the Company, share options and service contracts are
set out in the Remuneration report on pages 69 to 71. None of the
Directors had a material interest in any contract of significance in relation
to the Company or its subsidiaries during the year.
There are no agreements between the Company and its Directors
or employees that provide for compensation for loss of office or
employment in the event of a takeover of the Company. No additional
matters under LR9.8.4 have been identified, which require disclosure.
The Company has in place procedures to deal with conflicts of interest.
The Company follows the guidance on conflicts of interest issued by the
Association of General Counsel and Company Secretaries of the FTSE.
See page 60 for more details.
Research and development
The Group continues to undertake a research and development
programme with the objective of identifying and developing new
materials and products which have the potential to contribute to the
growth of the Group. During the year, £4.0 million (2022: £3.5 million)
of development expenditure was written off to the income statement
and no development expenditure (2022: £nil) was capitalised.
Greenhouse gas emissions
The disclosure of the Group’s greenhouse gas emissions is given in
the ESG report on pages 38 and 39, which forms part of this report and
is incorporated into it by cross reference.
Share capital
The Company has one class of ordinary share capital which carries no
right to fixed income. All of the Company’s shares in issue are fully paid
and each share carries the right to vote at general meetings of the
Company. During the year, the Company issued 34,217 (2022:
123,896) shares to satisfy the exercise of SAYE share options.
The Group uses an Employee Benefit Trust (“EBT”) to purchase shares
in the Company to satisfy entitlements under the Group's Long Term
Share Plan. The EBT has waived its rights to dividends. During the year,
the Group purchased 120,000 ordinary shares of 2 pence each (2022:
120,000) for a total consideration of £745,000 (2022: £749,000).
During the year, the EBT did not issue any ordinary shares (2022: 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
£4,527,000 (2022: £3,782,000). As at 30 November 2023, the EBT
held a total of 495,700 ordinary shares of 2 pence each (2022:
375,700) at a cost of £2,982,000 (2022: £2,237,000) and a market
value of £2,904,802 (2022: £2,051,322).
Further details of the share capital of the Company are given in note 22
to the financial statements.
There are no specific restrictions on the size of a holding in the
Company nor on the transfer of shares, which are both governed by
the provisions of the Articles and prevailing regulations and legislation
governing UK listed companies. The Directors are not aware of any
agreements between holders of the Company’s shares that may result in
restrictions on voting rights. No person has special rights of control over
the Company’s share capital.
Each year the Board seeks shareholder approval to renew the Board’s
authority to allot relevant securities and to purchase its own shares.
Porvair plc Annual Report & Accounts 2023
Governance
56
Directors’ report
Contracts
The Company is party to a number of agreements that take effect,
alter or terminate upon a change of control of the Company, such
as commercial contracts, banking agreements, property lease
arrangements and employee share plans.
Section 172 of the Companies Act 2006 disclosure
Details of the Board’s compliance with the requirements of Section 172
of the Companies Act 2006 are given on pages 48 to 50.
Non-financial and sustainability information statement
Non-financial and sustainability information required by s414CB of the
Companies Act 2006 can be found by using the references given on
page 51 of the Strategic report.
Substantial shareholders
As at 2 February 2024, the Company has been notified of the following
substantial shareholdings comprising 3% or more of the issued share
capital of the Company.
Ordinary
shares
Percentage
(number)
(%)
GGG SpA
7,729,427
16.67
Long Path Partners
3,905,167
8.42
Liontrust Asset Management
3,265,732
7.04
Blackrock Investment Management
2,909,904
6.28
Impax Asset Management
2,626,448
5.67
Financiere de L'Echiquier
2,020,023
3.59
Vanderbilt Gilead SMA
1,445,768
3.12
Royal London Asset Management
1,401,095
3.02
Corporate governance
The Company’s statement on corporate governance can be found in
the Corporate governance report on pages 59 to 61 of these financial
statements. The Corporate governance report forms part of this
Directors’ report and is incorporated into it by cross reference.
Employment policies and engagement
The Group’s employment policies and Employee Engagement activities
are described in the ESG report on pages 40 to 45, which forms part
of this report and is incorporated into it by cross reference.
Relationships with customers, suppliers and local communities
The Group’s relationships with customers, suppliers and interaction with
the local community are described on pages 44 and 45, which forms
part of this report and is incorporated by cross reference.
Financial risk management
The Group’s operations expose it to a variety of financial risks that
include the effects of price risk, foreign exchange risk, credit risk,
liquidity risk and interest rate cash flow risk. The Group has in place risk
management procedures that seek to limit the adverse effects on the
financial performance of the Group of these financial risks.
Given the size of the Group, the Directors have not delegated the
responsibility of monitoring financial risk management to a sub-
committee of the Board. The policies set by the Board of Directors are
implemented by the Company’s finance department, which has a policy
and procedures manual that sets out specific guidelines to manage
interest rate risk and credit risk, and circumstances where it would be
appropriate to use financial instruments to manage these.
Further details on the specific risks related to financial management and
their mitigation are given on pages 25 and 61.
Acquisitions
On 3 March 2023, The Group, through its subsidiary Porvair Filtration
Group Inc., acquired certain business and assets of HRW Inc., a small
engineering operation based in Nampa, Idaho. HRW is a key supplier
to the Porvair Filtration Group's microelectronics filtration facility in
Idaho. The total consideration was £868,000.
On 14 July 2023, the Group, through its subsidiary Porvair Holdings
B.V., acquired 100% of the issued share capital of two companies,
Ratiolab GmbH and Ratiolab Kft. (together "Ratiolab"). Ratiolab
manufactures laboratory consumables in a plant close to Budapest
and sells a wide range of laboratory consumables in Europe and the
Middle East from a distribution centre near Frankfurt. The total net cash
consideration was £8,108,000.
Post balance sheet events
On 4 December 2023, the Group, through its subsidiary Porvair
Holdings B.V., acquired 100% of the issued share capital of European
Filter Corporation NV. ("EFC"). EFC, a filtration business based in
Lummen, Belgium, has expertise in the manufacture of mist elimination
filters used in the production of industrial feedstocks and well
established industrial filtration sales channels in north east Europe.
The total consideration was £10,321,000.
Going concern
The Directors statement on going concern is incorporated in its review
of viability and going concern on pages 26 and 27.
Annual General Meeting
The Annual General Meeting of the Company is to be held on Tuesday
16 April 2024. The notice for this meeting and proxy forms will be sent
to shareholders separately.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic Report and the
Directors’ Report, the Directors’ Remuneration Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Company
financial statements for each financial year. The Directors have elected
under company law and are required under the Listing Rules of the
Financial Conduct Authority to prepare the Group financial statements
in accordance with UK-adopted International Accounting Standards.
The Directors have elected under company law to prepare the company
financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards
and applicable law) including Financial Reporting Standard 101,
Reduced Disclosure Framework (“FRS 101”).
The Group financial statements are required by law and UK-adopted
International Accounting Standards to present fairly the financial
position and performance of the Group; the Companies Act 2006
provides in relation to such financial statements that references in the
relevant part of that Act to financial statements giving a true and fair
view are references to their achieving a fair presentation.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and the Company and of the profit
or loss of the Group for that period.
Porvair plc Annual Report & Accounts 2023
Governance
57
In preparing each of the Group and Company financial statements, the
Directors are required to:
a. select suitable accounting policies and then apply them consistently;
b. make judgements and accounting estimates that are reasonable
and prudent;
c. for the Group financial statements, state whether they have
been prepared in accordance with UK-adopted International
Accounting Standards;
d. for the Company financial statements, state whether applicable UK
accounting standards have been followed, subject to any material
departures disclosed and explained in the Company financial
statements; and
e. prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and the Company will
continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group’s and the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and the Company and enable them to
ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Group and the Company and hence
for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
performance, business model and strategy.
Each of the Directors, whose names and functions are listed on pages
52 and 53, confirms that, to the best of their knowledge:
•
the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Company and the
undertakings included in the consolidation taken as a whole; and
•
the Strategic report and the Directors’ report include 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 it faces.
Directors’ responsibility for provision of information
to the Auditor
So far as each Director is aware, there is no relevant audit information of
which the Company’s Auditor is unaware; and each Director has taken
all the steps that they ought to have taken as a Director in order to make
themselves aware of any relevant audit information and to establish that
the Company’s Auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with
the provisions of s418 of the Companies Act 2006.
Independent Auditor
RSM UK Audit LLP has indicated its willingness to continue in office as
the Company’s Auditor. A resolution concerning its appointment will
be put to the Annual General Meeting.
By order of the Board
Chris Tyler
Company Secretary
2 February 2024
Porvair plc Annual Report & Accounts 2023
Governance
58
Directors’ report
continued
Porvair plc Annual Report & Accounts 2023
Governance
59
Corporate governance
Compliance
The Company has adopted the principles of good governance set out
in the 2018 UK Corporate Governance Code. This section describes
how the Board has applied those principles. The Directors are of the
opinion that the Company has complied with the provisions of the UK
Corporate Governance Code (which is publicly available at
www.frc.org) throughout the year.
LEADERSHIP AND COMPANY PURPOSE
Company Purpose
The Board has defined the Company’s purpose as “Porvair aims to
develop specialist filtration, laboratory and environmental technologies
for the benefit of all stakeholders.” Measures of success include
consistent earnings per share growth and improvement in selected ESG
metrics. Details of how the corporate purpose has been embedded in
the operations and the metrics used to measure success are given in the
Strategic report on pages 1 to 51. Details of the Board’s approach to
investing in and rewarding the workforce are given in the ESG report
on pages 28 to 47.
Role of the Board
The Group is directed and controlled by the Board. It provides strategic
leadership and support with the aim of developing the business
profitably, whilst assessing and managing the associated risks. The
Board ensures that the financial management, controls and resources
are in place to enable the business to meet its objectives. The Directors
take collective responsibility for the Group’s performance.
The Board has a formal schedule for reviewing the Group’s operating
performance and has other specific responsibilities reserved to it,
which include:
•
Approval of the published financial results and dividends;
•
Appointments to the Board and other Board committees;
•
Approval of the strategic direction of the business;
•
Approval of the Group’s approach to climate-related activities;
•
Approval of contracts outside the normal course of business;
•
Approval of expenditure over certain limits;
•
Approval for acquisitions and disposals;
•
Approval of treasury policy and significant new financing; and
•
Approval of the funding policies of the defined benefit
pension scheme.
The Chair is responsible for leadership of the Board. The responsibilities
of the Chair and Senior Independent Non-Executive Director are set out
clearly in a written document approved by the Board, available from the
Company Secretary on request.
The Executive Directors manage the day-to-day operations of the
business, under the leadership of the Chief Executive, within the
framework set out by the Board. Outside the formal schedule of Board
meetings, the Chair and Non-Executive Directors make themselves
available for consultation with the Executive team as necessary.
All Directors have access to the advice and services of the Company
Secretary, who is responsible to the Board for ensuring that Board
procedures are complied with. The Company Secretary is responsible
for advising the Board, through the Chair, on all governance matters.
The appointment and removal of the Company Secretary is a matter for
the Board as a whole.
The Board has a schedule of six pre-arranged meetings during the year.
In addition, other meetings are arranged to deal with specific issues or
transactions, as required. There was full attendance by Directors at all
pre-arranged Board meetings.
Takeover Directive
Disclosures relating to the Takeover Directive are included in the
Directors’ report (under “Share capital”) on page 56.
DIVISION OF RESPONSIBILITIES
Board of Directors
The Board consists of six Directors; two Executive Directors and four
Non-Executive Directors, including the Chair. The Board is chaired by
John Nicholas. Ben Stocks is the Group Chief Executive, James Mills is
the Group Finance Director. Sally Martin, John Nicholas, Ami Sharma
and Sarah Vawda are Independent Non-Executive Directors. Sally
Martin is the Senior Independent Non-Executive Director.
The Directors’ appointment and removal is a matter for the Board as a
whole. The Senior Non-Executive Director is available for consultation
with shareholders through the Company Secretary, by written submission.
The Executive Directors and the Chair meet with the Company’s
major shareholders and other potential investors on a regular basis
and have reported to the Board on those meetings. The Chair of the
Remuneration Committee consulted with major shareholders in the
year in connection with the terms of the revised Remuneration policy.
The Board considers the independence of each Non-Executive
Director and assesses relationships and circumstances likely to affect
each Director’s judgement. The Board considers each Non-Executive
Director to be independent of management.
All of the Directors offer themselves for re-election at each Annual
General Meeting.
On joining the Board, a new Director receives appropriate induction
including meeting with other Directors, visiting the Group’s principal
operations and meeting with senior management and the Group’s
principal advisers.
The Board has put in place a procedure by which any Director may take
independent professional advice at the expense of the Company in
furtherance of their duties as a Director of the Company.
The Company maintains Directors’ and Officers’ liability insurance.
COMPOSITION, SUCCESSION, EVALUATION
AND REMUNERATION
Board Committees
The Board has set formal terms of reference for each of its committees
setting out the composition, scope of work and reporting requirements
for each Committee.
Nomination Committee
The Board has established a Nomination Committee to provide a
transparent process and procedure for considering succession and the
appointment of new Directors to the Board.
The Report of the Nomination Committee on page 62 includes details
of the Nomination Committee’s remit, composition, attendance,
approach to diversity and scope of work in the year.
The Nomination Committee’s full terms of reference are available on the
Group’s website,
.
Audit Committee
The Board has established an Audit Committee to review and advise the
Board on matters relating to the internal controls and financial reporting
of the Group.
The Report of the Audit Committee on pages 63 and 64 includes details
of the Audit Committee’s remit, composition, attendance, scope of
work in the year and related judgements. A discussion of the Group’s
internal controls and its approach to internal audit is given in the Audit
risk and internal control section on this page.
The Audit Committee’s full terms of reference are available on the
Group’s website,
.
Remuneration Committee
The Board has established a Remuneration Committee to review and
advise the Board on matters relating to the Executive Directors’
remuneration.
The Remuneration report on pages 65 to 82 includes details on
remuneration policy, practices and the remuneration of the Directors.
The Remuneration Committee’s full terms of reference are available on
the Group’s website,
.
Evaluation
The Board undertakes a rigorous self assessment review each year to
consider its own performance. The procedures include individual
interviews by the Chair with each Director, review of an assessment
form and discussion of the findings at a Board meeting. The Senior
Independent Non-Executive Director maintains regular contact with
the other Independent Non-Executive Directors and the Executive
Directors, sufficient to monitor the performance of the Chair. The Chair,
in consultation with the Executive Directors, monitors the performance
of the Non-Executive Directors.
The Chair has conducted interviews and assessments with each
Director and the performance of the Executive Directors has been
considered in detail by the Remuneration Committee without the
Executive Directors present. The Chair considers that, following the
application of the Board’s formal performance evaluation programme,
each Director’s performance continues to be effective and each
Director has demonstrated commitment to their role.
Conflicts of interest
The Board has an annual process for disclosing any conflicts of interest
with Directors mandated to update the Board with any changes
throughout the year. There were no disclosed conflicts of interest in
the year (2022: none).
AUDIT, RISK AND INTERNAL CONTROL
Internal control
The Board has overall responsibility for ensuring that the Group
maintains a system of internal controls and for reviewing its
effectiveness. The system is not designed to eliminate the risk that the
Group’s objectives will not be achieved but to ensure that there is an
ongoing process for identifying, evaluating and managing the
significant risks. As with any such system, it can only provide reasonable,
but not absolute, assurance against material misstatement or loss.
The Board has reviewed the effectiveness of the process regularly
throughout the year. The Group’s key procedures are as follows:
Control environment – Group management and Board controls
–
each operating division has its own management group which meets
regularly to monitor operational matters. Each operating division is
responsible for establishing its own system of internal controls and for
ensuring compliance with those controls. The Divisional Director of
each operating division reports to the Group Chief Executive, and
clearly defined lines of responsibility have been established within this
organisational structure. The senior finance executive in each operation
has a dual responsibility to report within their operation to the Divisional
Director and to the Group Finance Director.
The Executive Directors, meet online weekly with the divisional senior
management as a group to discuss operating performance and the
near-term outlook. There is also a formal programme of quarterly
reviews with each division’s senior management team.
These formal reviews, conducted either in person or on-line, cover:
•
Health and safety;
•
Operational performance;
•
Risk reviews, including climate-related risks;
•
Employee Engagement activities; and
•
Investment decisions, including atmospheric carbon dioxide
reduction activities.
The Executive Directors visit all operations regularly to perform reviews.
Control environment – Operational controls
– in addition to the
Group internal control systems, each business follows control
procedures set out by regulators and customer requirements.
These include:
•
ISO 9001 systems and controls;
•
OSHA health and safety reviews;
•
Quality control procedures and inspections;
•
Insurance provider reviews;
•
Export ITAR compliance controls;
•
Customer site and product reviews;
•
Aerospace/nuclear compliance and traceability;
•
AS9100 compliance audits;
•
EPA compliance audits; and
•
GLP/FDA compliance.
Porvair plc Annual Report & Accounts 2023
Governance
60
Corporate governance
continued
Risk management
– operating division management has clear
responsibility for the identification of risks facing each operation, and for
establishing procedures to investigate and monitor such risks. A review
of each operation’s risk management is included in the normal cycle of
Executive Directors’ reviews of the divisions. The Board reviews a group
register of risks and mitigations on a regular basis as part of its normal
Board reporting. The Board also commissions independent reviews of
the key risks facing the Group as appropriate. Full details of the Group’s
risk management processes are given in the section on Principal risks
and uncertainties on pages 22 to 25.
Information and control systems
– the Group’s systems provide
management with regular and reliable management information.
Information systems are specific to each reporting entity and separate
from other entities’ systems. Common Group processes are used
for management reporting and consolidation. The Group has a
comprehensive process of annual budgets, target setting, and
detailed monthly reporting.
The annual budget of each operation is reviewed in detail by the
Executive Directors. The consolidated Group budget is approved
by the Board as part of its normal responsibilities.
Each operation produces full monthly management accounts
comprising an income statement, cash flow statement, balance sheet,
comparisons with prior year and the budget, and a forecast for the full
year. The Executive management team review the performance with
the operations’ management.
Monthly management accounts are consolidated at Group level.
The Board receives copies of the monthly management accounts and
reviews the performance of the Group in detail at each Board meeting.
Monitoring system
– the Board has established a framework of controls
encompassing procedures applicable to all businesses that are subject
to executive review.
The Group operates a self assessment process so that the operating
businesses can quantify the extent of their compliance with control
objectives. Each separate accounting entity completes an annual
self assessment questionnaire which highlights areas where control
improvements could be made. The results of these control
questionnaires are reviewed with senior management and new
controls are implemented as necessary.
The Group operates an internal audit cycle consisting of peer reviews
conducted by the Group’s financial controllers or other suitably
experienced employees or by external professional services firms.
The scope of the reviews each year is agreed in advance with the
Audit Committee and the formal reports on each review are considered
by the Audit Committee.
The Group Finance Director conducts monthly reviews with the
senior finance executive of each business, focused on controls and
governance, together with commercial and operational matters.
The Audit Committee considers that the Group’s internal audit
arrangements provide an acceptable level of review, appropriate for
the size of the business.
Consolidation process
– full management accounts for each entity
in the Group are consolidated each month and review and analysis is
carried out on those results. These consolidated accounts form the
basis of reports that are provided to Board members every month.
Statutory consolidated results are prepared at each half year and full
year which are reconciled with the consolidated management accounts.
Whistleblowing policy
– the Group has a formal whistleblowing
procedure which gives employees the opportunity to escalate their
concerns for investigation, ultimately to the Senior Non-Executive
Director. There were no matters arising in 2023 that were treated as
whistleblowing incidents (2022: none).
The Audit Committee and the Board have reviewed the effectiveness
of the Group’s internal controls for the period from 1 December 2022
up to the date of approval of this Annual Report and Accounts and have
addressed issues as they have been identified.
Chris Tyler
Company Secretary
2 February 2024
Porvair plc Annual Report & Accounts 2023
Governance
61
Governance
The Company’s Nomination Committee provides a transparent process
and procedure for the appointment of new Directors to the Board. The
Nomination Committee comprises all of the Non-Executive Directors
and is chaired by the Chair of the Company. The Nomination
Committee’s responsibilities include:
•
Identifying and nominating candidates to fill Board vacancies;
•
Evaluating the balance of skills, diversity, knowledge and experience
on the Board and the leadership needs of the organisation; and
•
Succession planning.
The balance of skills, diversity, knowledge and experience, the
leadership of the organisation and succession planning are considered
by the Board as a whole at least annually.
Succession planning
The Committee monitors the length of service and the skills and
experience of the Non-Executive Directors to assist in succession
planning. Succession plans for the Executive Directors are routinely
discussed between them and the Chair. The Committee is confident
that the Board has the necessary skills and experience to contribute
to the Group’s strategic direction and expects to continue to strengthen
the Non-Executive Directors’ knowledge and experience of the Group’s
operations in the coming year.
Succession plans for the Group’s 30 most senior executives, taking into
account gender and ethnic diversity, are considered by the Committee
at least once a year to identify likely succession requirements and to
ensure that development plans are in place to prepare those managers
expected to be able to fill more senior positions as they arise.
Board recruitment process
An external search consultancy is appointed to advise on each
appointment to the Board and seek suitable candidates. In the case
of Executive Directors, the Committee seeks to include candidates, if
appropriate, from the existing employees. Candidates from an initial list
are interviewed by the Chair and Chief Executive. Following selection
by the Chair and Chief Executive, shortlisted candidates (generally no
more than three) are then interviewed by the other Directors. Once a
suitable candidate has been identified, the Chair of the Committee
recommends to the Board that the Company make a formal offer
of employment to the candidate.
2023 activities
The Nomination Committee met twice during the period to appoint a
new Non-Executive Director and to consider the Group’s leadership
development, succession planning and gender diversity, and was fully
attended by all members. The Board takes into account gender and
racial diversity when considering appointments to the Board. The Board
considers that the current composition of the Board has an appropriate
balance of gender and racial diversity.
Following the resignation of Jasi Halai on 31 January 2023, the
Committee, with the help of a search consultancy, Independent Search
Partnership, which is independent and has no connection with either
the Company or its Directors, conducted a search for a new female
Non-Executive Director. The Committee recommended to the Board
that Sarah Vawda be appointed from a shortlist of candidates.
All Directors are required to submit themselves for re-election every year
at the Annual General Meeting.
Boardroom diversity
Recruitment of Board candidates is conducted, and appointments
made, on merit and suitability against objective selection criteria with
consideration of, amongst other things, the benefits of diversity on the
Board, including gender and ethnicity. Further details are disclosed
below and on page 52.
The tables below set out the gender and ethnic diversity of the Board
and executive management as at 30 November 2023 as disclosed to
the Company by each individual concerned:
Gender diversity
As at 30
Number
Percentage
Number of
Number in
Percentage
November
of Board
of the Board
senior
executive
of executive
2023
members
positions
management
management
on the Board
(CEO, CFO,
SID and Chair)
Men
4
67%
3
6
86%
Women
2
33%
1
1
14%
Total
6
100%
4
7
100%
Ethnic diversity
As at 30
Number
Percentage
Number of
Number in
Percentage
November
of Board
of the Board
senior
executive
of executive
2023
members
positions
management
management
on the Board
(CEO, CFO,
SID and Chair)
White British or
other White
4
67%
4
7
100%
Asia/Asian British
2
33%
–
–
–
Total
6
100%
4
7
100%
The Board is compliant with the requirements of the FCA guidance set
out in listing rule LR9.8.6(9) except that the Board currently has less than
40% women.
This arises because the Committee sees benefits in having only a small
number of Board Directors, currently there are six. It expects to have
either five or six Directors. The Board’s policy is to have at least two
female and two male Directors. During the recruitment period following
Jasi Halai’s resignation on 31 January 2023 and the appointment of Sarah
Vawda on 26 June 2023 the Board was not compliant with its policy.
John Nicholas
Chair of the Nomination Committee
2 February 2024
Porvair plc Annual Report & Accounts 2023
Governance
62
Report of the Nomination Committee
Porvair plc Annual Report & Accounts 2023
Governance
63
Report of the Audit Committee
Report of the Audit Committee
The Audit Committee has an agreed timetable of meetings with
agendas. Representatives of the Group’s External Auditor, RSMUK
Audit LLP (“RSM”), attend meetings by invitation. Other employees of
the Company may be invited to attend meetings as and when required.
The Audit Committee comprised all the Independent Non-Executive
Directors of the Company, with the exception of the Chair of the
Group. Ami Sharma was appointed to the Committee on 1 January
2023 and became Chair of the Audit Committee on 31 January 2023,
following Jasi Halai’s resignation. The Board has designated Ami Sharma
as the member of the Committee with recent and relevant financial
experience. Sarah Vawda, appointed on 26 June 2023, and Sally Martin
are the other members of the Committee. All members of the
Committee are deemed to have the necessary ability and experience
to understand the financial statements. The Committee as a whole has
competence relevant to the sector in which the Group operates.
The Audit Committee met three times during the year. There was full
attendance by the members. Two of those meetings were held prior
to the Board meetings to approve the announcement of the Group’s
interim and full year announcements. At those meetings, the Committee
considered the financial reporting judgements made by management.
Its deliberations were informed by accounting papers and financial
reports prepared by management and reports prepared by the Group’s
External Auditor. The third meeting focused on the work that RSM
planned to undertake in conducting their annual audit.
The particular area of focus for the Committee in reviewing the
judgements underlying the financial statements this year has been
those in relation to major contracts. The Group is party to several major
gasification projects accounted for over time as long-term contracts
which were entered into in previous years and other contracts entered
into in the year ended 30 November 2023. These contracts contain
warranties. Management has assessed the likelihood of economic
outflows in relation to these warranties and has made provisions based
on its best estimates of the probable economic outflows.
Management has recognised provisions of £3.6 million as at
30 November 2023. £3.2 million relates to warranties on contracts,
of which £1.3 million relates to a single customer. The Committee
recognises the high degree of judgement and estimation involved in
determining these provisions. It has reviewed the basis for the provisions
set out by management and has challenged management on the
likelihood of the related risks arising. The Committee concurred with
the accounting and presentation of these provisions.
The Committee also reviewed papers prepared by management
specifically relating to:
•
the carrying value of goodwill and intangible assets;
•
the acquisition accounting for Ratiolab;
•
the accounting for the Group’s defined benefit pension scheme;
•
contract judgements, including provisions; and
•
going concern and viability.
Meetings between the Committee Chair, the External Auditor and the
Group Finance Director in advance of the scheduled meetings provided
an early review of the judgements and assumptions included in each
paper and enabled the Chair of the Committee to direct additional work
as required. The Committee was able to further challenge management
and assess the External Auditor’s work in the January 2024 Audit
Committee meeting, such that the Committee was able to satisfy itself
that the External Auditor had demonstrated professional scepticism
and challenged management’s assumptions and judgements. The
Committee was able to satisfy itself that the assumptions and judgements
included in the papers prepared by management were reasonable
and appropriate.
The Committee also reported to the Board that it considered that,
taken as a whole, the 2023 Annual Report was fair, balanced and
understandable and included the necessary information to assess the
performance, business model and strategy of the Group.
In addition to its work reviewing the Group’s financial statements, the
Committee has:
•
reviewed announcements relating to the Group’s financial
performance and reviewed significant financial reporting judgements
contained therein, in particular the information contained in the
Group’s interim report;
•
monitored the Group’s internal financial controls and the Group’s
internal control and risk management systems and ensured that these
are properly reviewed by the Group’s management in line with the
procedures set out on pages 60 and 61;
•
reviewed the scope of the internal audit work done in assessing the
operating companies’ internal controls and procedures. The internal
audit work is generally undertaken through a system of peer reviews
by the Group’s finance function. The Committee considers the Group
to be too small to justify a dedicated internal audit function;
•
agreed the scope, remuneration and terms of engagement of the
External Auditor; specifically the Committee sought to ensure that
the audit covered the Group as a whole and included tests and
procedures on the smaller entities that might otherwise have been
considered immaterial for review;
•
considered the requirement for statutory audits of smaller entities as
part of the audit planning process;
Statement by the Chair of the Audit Committee
The Committee’s role is to assist the Board by reviewing: the integrity
of the Group’s financial reporting; the quality of the external and
internal audit processes; the appropriateness of the Group’s internal
controls; and compliance with a range of financial, governance and
other compliance matters.
The Committee has put a particular emphasis in the year on:
•
visiting various operating businesses around the Group;
•
ensuring that internal controls are maintained throughout
the Group;
•
reviewing the overall financial control framework; and
•
monitoring, through regular update meetings, the scope and
delivery of the External Auditor’s work, in particular the hybrid
mix of visits to physical locations and an online audit approach.
Ami Sharma
Chair of the Audit Committee
2 February 2024
•
monitored the External Auditor’s effectiveness, independence and
objectivity. The Committee carefully monitored the review, undertaken
by RSM, of the interim financial information for the six months ended
31 May 2023 and the work carried out by RSM in relation to their audit
of the Group and Company accounts for the year ended 30 November
2023. The Committee is satisfied with the quality and independence
of their work;
•
considered the robustness of the audit process; the quality and
timeliness of its delivery; the quality of the External Auditor’s staff
and reporting; and its value for money. In making its assessment, the
Committee made use of a professionally prepared checklist to guide its
assessment; discussed the audit delivery with management; and met
with the audit partner at each Audit Committee meeting in the year;
•
assessed the extent to which the External Auditor challenged the
judgements made by management. The Committee, management
and the External Auditor consider the key areas of judgement within
the accounts well in advance of the year-end audit. These areas of
judgement are included for specific focus in the audit plan. The
Committee is presented with papers from the management on the key
areas of judgement in the accounts. The judgements contained within
these papers are assessed by the External Auditor in their reporting
to the Committee. Outside the formal meetings, the Chair of the
Committee meets with the audit partner ahead of each Committee
meeting to obtain a detailed understanding of the audit work that
has been undertaken;
•
reviewed arrangements by which staff of the Group may raise
concerns about possible improprieties in matters of financial reporting
or other matters;
•
considered its own effectiveness by means of a professionally prepared
checklist and made recommendations to the Board for improvements
where necessary; and
•
reported to the Board on how it has discharged its responsibilities.
The Audit Committee has set a policy which is intended to maintain
the independence and objectivity of the Company’s External Auditor
when acting as External Auditor of the Group accounts. The policy
governs the provision of audit and non-audit services provided by the
External Auditor and limits the fees and scope of the services that may
be performed by the Group’s External Auditor. In summary, the External
Auditor is limited to non-audit fees of no more than 70% of the average
fees agreed for the audit in the prior three years and may only undertake:
•
reporting required by law or regulation to be provided by the
External Auditor;
•
reviews of the interim financial information;
•
reporting on regulatory returns;
•
reporting on government grants;
•
reporting on internal financial controls when required by law
or regulation;
•
extended audit work that is authorised by the Audit Committee
performed on financial information and/or financial controls where this
work is integrated with the audit work and is performed on the same
principal terms and conditions;
•
reports required by competent authorities/regulators supervising the
Group where the authority/regulator has either specified the External
Auditor or identified to the Group that the External Auditor would be
an appropriate choice of service provider; and
•
audit or other services provided as External Auditor or Reporting
Accountant, that an objective, reasonable and informed third-party
would conclude the understanding of the Group obtained by the
External Auditor is relevant to the service and the nature of the service
provided would not compromise independence.
All non-audit services in excess of £20,000 provided by the External
Auditor must be approved by the Committee.
The fees paid to the External Auditor for audit services, audit related
services and other non-audit services are set out in note 4 of the
consolidated financial statements. The only non-audit service provided
by the External Auditor was a review of the Group’s interim financial
information. RSM has not provided any other services to the Group
in the year.
The Audit Committee is authorised to engage the services of external
advisers, as it deems necessary, at the Company’s expense in order to
carry out its function.
Tenure of the Auditor
RSM was initially appointed on 15 September 2020 following a
competitive tender process. A competitive re-tender was undertaken in
2023 and RSM were re-appointed in 2023. Graham Ricketts has been
the audit partner since the appointment of RSM.
Porvair plc Annual Report & Accounts 2023
Governance
64
Report of the Audit Committee
continued
Porvair plc Annual Report & Accounts 2023
Governance
65
Annual Statement by the Chair of the Remuneration
Committee (“the Committee”)
On behalf of the Board, I am pleased to present our Remuneration
report for 2023. In line with the UK Government reporting regulations
on Directors’ pay, introduced in October 2013, and the 2018 UK
Corporate Governance Code, this report has been split into
three sections:
•
a statement by the Chair of the Committee;
•
an annual report on remuneration – that discloses how the current
remuneration policy has been implemented during the year ended
30 November 2023 and includes a summary of the plans in place for
2024; and
•
a Remuneration Policy statement – that sets out the components of
the Company’s proposed remuneration policy, which, if approved
at the AGM, will be in place for three years from 16 April 2024.
At the AGM on 16 April 2024 we will seek your support for the annual
report on remuneration, in the form of an advisory vote, for the revised
Remuneration Policy, which will be subject to a binding resolution, and
for a new set of rules for the Group’s Save As You Earn scheme.
We would like to thank shareholders for their support of the 2022
Remuneration report. At the AGM on 18 April 2023, the advisory vote
on the 2022 Remuneration report received almost 97% of the votes in
favour of the resolution.
The Committee’s objectives
The Committee’s remit is to set policies and levels of remuneration to
encourage actions by management that are in the long-term interests
of the Company and its shareholders. The Committee met twice during
the year. The meetings were fully attended by the Committee members.
The Committee aims to provide remuneration packages that:
•
are competitive, but not excessive;
•
are designed to attract, retain and motivate managers of high
quality to deliver growth for the business;
•
are aligned with shareholders’ interests;
•
include an element of the potential reward linked to personal
performance; and
•
encourage the Executive Directors to accumulate shares in
the Company.
Revised Remuneration Policy
The Committee’s view, supported by external consultants and following
consultation with the Group’s major shareholders, is that the 2021 policy
operated well and that no major change is necessary in 2024. The
Committee noted that an external benchmarking exercise showed that
executive director pay levels remain below those in companies of similar
scale and spread. If the Group’s long-term growth record continues,
these pay differentials are likely to increase, and the Committee is
seeking shareholder approval to increase flexibility around variable
pay as a consequence. The proposal is to increase the annual bonus
maximum from 100% of base salary to the sector group median level
of 125% of base salary. The LTSP policy maximum would remain at its
current level of 150% of base salary which is already in line with market.
I should stress that the Committee has not yet decided whether, assuming
an increase in annual bonus maxima is approved by shareholders, it
will actually use the increased headroom. This change is mainly about
adding flexibility for the 2024 to 2027 period and ensuring target and
maximum remuneration levels remain competitive. In all events the
performance conditions will remain stretching.
No other changes to the 2021 policy are proposed.
Review of Executive Directors’ base salaries
As referred to in the Revised Remuneration Policy paragraph above,
the Committee and its advisors compared the levels of salary, annual
bonus and LTSP awards at Porvair to remuneration levels at a group of
companies of similar size, ownership structure and sector. In addition,
the Committee considered pay levels at a “market cap group”
containing FTSE SmallCap companies of similar market cap.
Ben Stocks’ base salary is currently 16% below the sector group median.
This position has arisen because over his tenure Ben has received salary
increases in line with those awarded to the Porvair UK workforce while
the Group has grown. With Ben’s agreement, the Committee is not
minded to change this.
On appointment in April 2021, in line with the 2021 remuneration
policy, James Mills’ base salary was set significantly below market levels,
and was fixed for 19 months. Since that time, UK CPI has increased by
20% and while James Mills received a 4% base salary uplift at the end
of 2022, his current salary remains positioned around 27% below the
sector group median. Since his appointment, James Mills has performed
strongly and developed in role. Following consultation with the Group’s
major shareholders, we have increased James Mills’ base salary by
13% from 1 December 2023. This results in a base salary set around
17% below the sector median, which is a similar position to that
of Ben Stocks.
Remuneration report
Clarity:
Remuneration
arrangements should be
transparent and promote
effective engagement
with shareholders and
the workforce.
Simplicity:
Remuneration structures
should avoid complexity,
and their rationale and
operation should be easy
to understand.
Risk:
Remuneration
arrangements should
ensure reputational
and other risks from
excessive rewards, and
behavioural risks that can
arrive from target-based
incentive plans, are
identified and mitigated.
Predictability:
The range of possible
values of rewards and
any limits or discretion
should be identified and
explained at the time
of approving
the policy.
Proportionality:
The link between
individual awards, the
delivery of strategy
and the long-term
performance of the
company should
be clear.
Alignment to culture:
Incentive schemes
should drive behaviours
consistent with company
purpose, values and
strategy.
Corporate Governance Code
Our remuneration principles are underpinned by compliance with corporate governance guidelines and specifically with Provision 40 and Section 41 disclosures
of the 2018 UK Corporate Governance Code. How we have applied these principles is demonstrated in the Remuneration report on pages 65 to 82.
Porvair plc Annual Report & Accounts 2023
Governance
66
Remuneration report
continued
Annual bonus awards and vesting of Long Term Share Plan
Porvair’s corporate purpose, as stated on pages 3 to 5 and 9 is to
develop specialist filtration, laboratory and environmental technologies
for the benefit of all stakeholders. Success of the strategy is measured by
consistent earnings per share growth, and improvement in selected ESG
metrics. The annual bonus is based on cash generated from operations
as well as achievement of strategic objectives including ESG metrics.
Growth in earnings per share is rewarded through the long-term
incentive awards.
• 2023 bonus and LTSP vesting
In the past year, the cash generation of the Group was better than
planned. The Committee approved a 62.7% of salary reward for
the financial component of the annual bonus, being 90% of the
maximum award. Progress was also made towards the agreed
strategic objectives. The Committee decided that a 25.3% of
salary award would be made for achievement of these objectives,
representing 84% of the maximum in relation to this component
of the annual bonus.
In 2020, the Committee set a target for the long-term incentive award,
granted in January 2021, of adjusted earnings per share of 32.9 pence
in the year ended 30 November 2023 to achieve 100% vesting. 20%
of the award would vest if the Group achieved adjusted earnings per
share of 24.3 pence in FY2023. A sliding scale would operate if the
adjusted earnings per share is between 24.3 pence and 32.9 pence.
Adjusted earnings per share in the year ended 30 November 2023
was 37.2 pence, and accordingly, 100% of the granted options vested.
• 2024 targets and grants
For 2024 the Committee has decided that the potential bonus award
should continue to be a maximum of 100% of salary with 70% available
for achievement of financial objectives and 30% for progress on
strategic objectives. Stretching targets have been set to achieve the
maximum payout.
The Committee has decided that it should award the Executive
Directors with LTSP 2018 options with a face value of 150% of salary
that may vest based on the earnings per share in the year ending
30 November 2026. Vesting in full will require the Group to achieve
adjusted earnings per share of at least 56.6 pence, requiring 15%
compound annual growth over the three year period.
Revised Save As You Earn (“SAYE”) scheme
The SAYE scheme rules approved in 2014 have now expired and new
rules on substantially the same terms will be proposed at the AGM for
a further 10 year term.
Sally Martin
Chair of the Remuneration Committee
2 February 2024
Porvair plc Annual Report & Accounts 2023
Governance
67
ANNUAL REPORT ON REMUNERATION
This report complies with the UK Corporate Governance Code published in July 2018 (the “UK Corporate Governance Code”) and other relevant
regulation, including the remuneration reporting regulations (The Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013) (the “Remuneration Regulations”). It sets out the Group’s remuneration policy and details of Directors’
remuneration. A resolution to approve this report will be proposed at the Annual General Meeting in April 2024.
The Committee
The Committee recommends to the Board the framework, or broad policy, for the remuneration and long-term incentive arrangements of the
Company’s Executive Directors and Chair. The Committee also has an advisory role in relation to major changes in employee benefit structures
throughout the Company and the Group. The Committee uses external published benchmark data to guide its deliberations. The remuneration
of the Non-Executive Directors is set by the Executive Directors.
The members of the Committee are drawn solely from the independent Non-Executive Directors. The Committee currently comprises all of the
independent Non-Executive Directors of the Company. Ami Sharma and Sarah Vawda joined the Committee on 1 January 2023 and 26 June 2023
respectively, and Jasi Halai resigned from the Committee on 31 January 2023. To be quorate at least two members of the Committee must attend.
Sally Martin is the Chair of the Committee. The Group Chief Executive may be invited to attend and speak at meetings of the Committee but does
not participate in any matter which impacts upon his own remuneration arrangements. The Committee met twice during the year. The meetings
were fully attended by all of its members.
INFORMATION REQUIRED TO BE AUDITED
Summary of Executive Directors’ remuneration packages
The Executive Directors’ remuneration packages consist of: a base salary; a discretionary annual cash bonus earned for the achievement of financial
and non-financial objectives; the grant of share options and long-term incentives with three year financial performance targets; the provision of
pension benefits, or a cash allowance in lieu of pension benefits; and other benefits. The terms of their service contracts are disclosed in the
Directors’ report on page 56.
Executive Directors’ remuneration
The following table shows the total remuneration of the Executive Directors for the year:
Basic salary
Taxable
Fixed Total
Annual
Long-term
Variable Total
Total
and fees
benefits
Pension
2023
bonus
incentives
Other
2023
2023
2023
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
E
xecutive Directors
J A Mills
203
14
14
231
178
267
7
452
683
B D W Stocks
346
36
82
464
305
534
–
839
1,303
Basic salary
Taxable
Fixed Total
Annual
Long-term
Variable Total
Total
and fees
benefits
Pension
2022
bonus
incentives
Other
2022
2022
2022
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Executive Directors
J A Mills
195
14
14
223
1 85
–
–
1 85
408
B D W Stocks
333
29
20
382
316
264
–
580
962
In 2023 the Executive Directors incurred PAYE tax and national insurance contributions amounting to £484,000 (2022: £445,000).
Ben Stocks’ basic salary will be increased from 1 December 2023 by 4% (2022: 4%). This is in line with the increase for other UK based staff.
Following shareholder consultation, James Mills’ basic salary will be increased by 13% (2022: 4%) recognising that his salary since recruitment has
been significantly below market levels.
Benefits
Benefits for the Executive Directors comprised: a cash allowance in lieu of a company car; medical insurance and wellness benefits; life assurance;
and permanent health insurance. Life assurance benefits covering a lump sum of eight times salary on death in service were provided for Ben Stocks
and four times salary on death in service were provided to James Mills through Registered Life Schemes. The Executive Directors are covered by the
Group’s permanent health insurance scheme.
Pension entitlements
The Porvair plc Pension and Death Benefit Plan (“the Plan”) is a contributory defined benefit scheme for UK employees, which is now closed to new
entrants. UK employees not in the plan participate in a defined contribution scheme. Pension benefits from the Plan were subject to the HMRC
earnings cap and the Group has continued to maintain an earnings cap since the HMRC limits were removed in April 2006.
Porvair plc Annual Report & Accounts 2023
Governance
68
Remuneration report
continued
Pension benefits, up to the capped limit of £164,400 of salary until 31 March 2023 and £181,200 thereafter, were provided in the period for Ben
Stocks by the Plan. Ben Stocks is entitled to pension benefits from the Plan on the same basis as all other members. The employee and employer
contributions increased from 10% and 17% to 11% and 18.8% of basic salary respectively from 1 August 2022. The Plan has a normal retirement age
of 65. Only basic salary is pensionable. Ben Stocks was aged 61 on 30 November 2023. In the event that he retires early he may, at the discretion
of the Trustees of the Plan, apply to draw a reduced pension. There is no actuarial benefit to the individual to retiring early.
Ben Stocks also received 12% additional salary on the difference between his full salary and the capped limit in lieu of pension benefits from
1 December 2021 until 1 December 2022, when the additional salary reduced to 7%. This additional salary is not included in calculations for
annual bonus or LTSP awards. James Mills receives a 7% of basic salary contribution towards a pension scheme. A 7% basic salary contribution
towards a pension scheme is in line with the benefit to UK employees in the defined contribution scheme.
Annual bonus
Bonus payments to Executive Directors are made at the discretion of the Committee for achievement of Group financial performance targets and
strategic objectives. In 2023, awards were capped at 100% of base salary. Up to 70% related to achievement of financial performance targets and
up to 30% related to achievement of strategic objectives. Bonuses are not pensionable but may be paid directly into the Executive Directors’
pension schemes if requested.
The table below shows the targets set for 2023:
% salary
% salary
Target at
Target for
awarded for
awarded for
% of
operating
maximum
operating plan
maximum
salary
Target
plan level
payout
achievement
achievement
Achieved
awarded
Adjusted operating cash flow
£20.27m
£23.27m
25%
70%
£22.79m
62.7%
Strategic: For revenue growth initiatives; margin improvement;
see
and progress on ESG metrics
N/A
N/A
N/A
30%
below
25.3%
The adjusted operating cash flow can be reconciled to the cash generated from operations. It is based on the management accounts for the
year, which differ from the reported financial statements only because they are translated at constant exchange rates. This ensures that the cash
flows in foreign subsidiaries are based on the same exchange rates as the target. It is a measure that reflects Group profitability and control of
working capital.
In the past year, the cash generation of the Group was better than planned. The Committee approved a 62.7% of salary reward for the financial
component of the annual bonus, being 90% of the maximum award.
The Committee noted, in relation to the strategic objectives: progress was made in positioning the Group for future growth, notwithstanding
limited revenue growth achieved in the year; demonstrable improvements in profitability, as a result of the sharp focus on margins; continued
excellent work on improving Employee Engagement including improvements in survey feedback; and some limited progress on reducing carbon
intensity. The Committee concluded that a 25.3% of salary bonus should be paid, to reflect the progress made in the year. This represents 84%
of the maximum bonus achievable for strategic objectives.
For 2024 annual bonus awards will be capped at 100% of base salary. Up to 70% may be paid on achievement of financial performance targets
based on adjusted operating cash flow, and up to 30% on achievement of strategic objectives. The targets for adjusted operating cash flow, which
are commercially sensitive, are set by the Committee before the start of the financial year. Achievement of plan will be rewarded with a 25% of salary
award, with sliding scales operating between zero bonus for performance more than 10% below plan and 70% of salary rewarded for performance
15% above plan. Strategic targets will be based on the achievement of revenue and profitability growth initiatives; progress on achieving ESG
metrics including reducing carbon intensity; and delivery of leadership development initiatives. The Committee considers these targets to be
consistent with the Group’s strategy and purpose.
Vesting of Long Term Share Plan
2022 vesting
Options granted in 2020 under LTSP 2018 scheme can only be exercised in full if the Committee is satisfied that in the financial year ended 30
November 2022 (“FY2022”) the Group achieved adjusted earnings per share of at least 33.7 pence. 30% of the award vests if the Group achieved
adjusted earnings per share of 29.2 pence in FY2022. A sliding scale operates if adjusted earnings per share are between 29.2 pence and 33.7
pence. No shares vest if the adjusted earnings per share in FY2022 are below 29.2 pence. Based on an adjusted earnings per share of 33.2 pence
achieved in FY2022, 92% of the options granted vested.
2023 vesting
Options granted in 2021 under the LTSP 2018 scheme can only be exercised in full if the Committee is satisfied that in the financial year ended
30 November 2023 (“FY2023”) the Group achieved adjusted earnings per share of at least 32.9 pence. 20% of the award will vest if the Group has
achieved adjusted earnings per share of 24.3 pence in FY2023. A sliding scale will operate if adjusted earnings per share are between 24.3 pence
and 32.9 pence. No shares vest if the adjusted earnings per share in FY2023 are below 24.3 pence. Based on an adjusted earnings per share of
37.2 pence achieved in FY2023, 100% of the options granted will vest.
These options are subject to an additional two year holding period after the end of the vesting period. After the vesting period, before the end of
the two year holding period, the option holder may exercise the option but may only sell sufficient shares to settle the option price and the income
tax payable.
Share options and long-term incentive plan shares
Awards of share options and long-term incentive plan shares are at the discretion of the Committee.
The Company operates a discretionary share option plan, which was updated by a resolution put to the AGM on 17 April 2018.
The scheme
provides nominally priced options or share awards with a ten year life, subject to vesting conditions after three years based on performance
conditions set by the Committee. The LTSP 2018 includes:
•
provision to allow the Committee to make normal awards up to 150% of salary per annum to an Executive;
•
a cap of 250% of base salary, at the discretion of the Committee, to be used in exceptional circumstances;
•
malus provisions;
•
clawback provisions at the discretion of the Committee; and
•
a required holding period of up to two years after the end of the vesting period.
The Company also periodically offers invitations to all UK permanent employees to join Save As You Earn (“SAYE”) schemes.
Currently there are
three year and five year schemes running following invitations in October 2019, February 2021 and June 2023. A revised scheme on substantially
the same terms as the scheme approved by shareholders in 2014 will be put to shareholders for approval at the Annual General Meeting on
16 April 2024.
The maximum number of shares that may be issued under the Company’s option schemes may not exceed 10% of the Company’s issued share
capital in any 10 year period.
The market price of the Company’s ordinary shares as at 30 November 2023 was 586 pence per share (2022: 546 pence per share). The range
of market prices during the year was between 508 pence and 698 pence.
Directors’ holdings in shares and share options
In awarding long-term incentive shares to the Executive Directors, the Committee encourages the Executive Directors to build up a holding of
shares in the Company. The Committee requires the Executive Directors to build up a shareholding through the retention of long-term incentive
awards equal to twice base salary within five years of joining. Ben Stocks has exceeded this guideline since April 2013 and James Mills has until
April 2026 to achieve the target.
The beneficial interests at 30 November 2023 and 30 November 2022 of the Directors and their connected persons in the ordinary shares of the
Company are shown below. There have been no changes in those interests up to the date of this report.
2023
2022
Ordinary
Share
Ordinary
Share
shares
options
shares
options
(number)
(number)
(number)
(number)
Executive Directors
J A Mills
11,790
153,256
8,487
90,350
B D W Stocks
532,442
315,205
528,022
217,730
Non-Executive Directors
J H Halai
N/A
N/A
2,933
–
S J Martin
–
–
–
–
J E Nicholas
7,500
–
7,500
–
A Sharma
–
–
N/A
N/A
S B Vawda
–
–
N/A
N/A
Porvair plc Annual Report & Accounts 2023
Governance
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Porvair plc Annual Report & Accounts 2023
Governance
70
Remuneration report
continued
Details of the share options held by the Executive Directors at the end of the year, which have been granted under Porvair Share Option Schemes,
are as follows:
As at 30
At 30
November
Granted
Lapsed
Exercised in
November
2022
in the year
in the year
the year
2023
Exercise
Exercisable
(number)
(number)
(number)
(number)
(number)
price
Grant date
from
Expiry date
B D W Stocks
Vested
2018
49,680
–
–
–
49,680
2p
07/02/2020
07/02/2023
07/02/2030
2018
92,600
–
–
–
92,600
2p
02/02/2021
02/02/2024
02/02/2031
Unvested
2018
75,450
–
–
–
75,450
2p
02/02/2022
02/02/2025
02/02/2032
2018
–
97,475
–
–
97,475
2p
02/02/2023
02/02/2026
02/02/2033
217,730
97,475
–
–
315,205
J A Mills
Vested
2018
46,200
–
–
–
46,200
2p
21/04/2021
21/04/2024
21/04/2031
Unvested
SAYE
–
5,836
–
–
5,836
514p
01/06/2023
01/06/2028
01/12/2028
2018
44,150
–
–
–
44,150
2p
02/02/2022
02/02/2025
02/02/2032
2018
–
57,070
–
–
57,070
2p
02/02/2023
02/02/2026
02/02/2033
90,350
62,906
–
–
153,256
Scheme interests awarded during the financial year
The table below sets out the options granted during 2022 and 2023:
Share price
Face value
Exercise
used to
of grant
Date of grant
Scheme
Number
price
value grant
£’000
B D W Stocks
2 February 2022
2018
75,450
2p
662p
499
2 February 2023
2018
97,475
2p
533p
520
J A Mills
2 February 2022
2018
44,150
2p
662p
292
2 February 2023
2018
57,070
2p
533p
304
1 June 2023
SAYE
5,836
514p
642p
37
For performance over the three year period to 30 November 2026, the Committee has decided that Ben Stocks will be awarded 92,900 2 pence
options and James Mills will be awarded 59,400 2 pence options under the LTSP 2018 scheme immediately after the announcement of the Group’s
results. The share price used to value the grant was 579 pence per share.
The Long Term Share Plan shares to be granted are calculated to equal 150% of a year’s salary for each Executive Director based on the average
share price over the final quarter of the preceding financial year and the Executive Director’s salary at 1 December 2023. Future awards will
be calculated on the same basis. The Long Term Share Plan shares are options issued at the nominal value of the Company’s ordinary shares
of 2 pence.
Performance conditions of the unvested share options
Options granted in 2022 under the LTSP 2018 scheme can only be exercised in full if the Committee is satisfied that in the financial year ending
30 November 2024 (“FY2024”) the Group has achieved adjusted earnings per share of at least 38.3 pence. 20% of the award will vest if the
Group has achieved adjusted earnings per share of 28.3 pence in FY2024. A sliding scale will operate if adjusted earnings per share are between
28.3 pence and 38.3 pence. No shares vest if the adjusted earnings per share in FY2024 are below 28.3 pence.
Options granted in 2023 under the LTSP 2018 scheme can only be exercised in full if the Committee is satisfied that in the financial year ending
30 November 2025 (“FY2025”) the Group has achieved adjusted earnings per share of at least 50.5 pence. 20% of the award will vest if the
Group has achieved adjusted earnings per share of 37.3 pence in FY2025. A sliding scale will operate if adjusted earnings per share are between
37.3 pence and 50.5 pence. No shares vest if the adjusted earnings per share in FY2025 are below 37.3 pence.
The Committee intends to grant options after announcement of the Group results under the LTSP 2018 scheme, which can only be exercised in full
if the Committee is satisfied that in the financial year ending 30 November 2026 (“FY2026”) the Group has achieved adjusted earnings per share of
at least 56.6 pence. 25% of the award will vest if the Group has achieved adjusted earnings per share of 41.8 pence in FY2026. A sliding scale will
operate if adjusted earnings per share are between 41.8 pence and 56.6 pence. No shares vest if the adjusted earnings per share in FY2026 are
below 41.8 pence.
These unvested options are subject to an additional two year holding period after the end of the vesting period. After the vesting period, before the
end of the two year holding period, the option holder may exercise the option but may only sell sufficient shares to settle the option price and the
income tax payable.
The options granted under the 2014 SAYE scheme were issued at a 20% discount to the market price at the date of grant. These options have no
performance conditions.
The Company funds the Employee Benefit Trust, approved at the 2015 AGM, to settle incentive share awards. At 30 November 2023, the Trust
held 495,700 shares (2022: 375,700 shares).
The Executive Directors did not exercise any share options or sell any shares in 2023.
The table below sets out the options exercised during 2022:
Share price
on date
Date of exercise
Scheme
Number
Exercise price
of exercise
B D W Stocks
29 November 2022
SAYE
7,537
398p
568p
The Executive Directors’ total gain on the exercise of share options in 2022 was £12,813 before deduction of taxes. On exercise, Ben Stocks
retained these shares.
Non-Executive Directors
The terms of appointment of the Non-Executive Directors are disclosed in the Directors’ report on page 56. The table below gives the salary and
fees of the Non-Executive Directors:
Basic salary
and fees
2023
£’000
J H Halai (resigned on 31 January 2023)
8
S J Martin
50
J E Nicholas
111
A Sharma (appointed on 1 January 2023)
45
S B Vawda (appointed on 26 June 2023)
19
233
Basic salary
and fees
2022
£’000
J H Halai
43
S J Martin
43
J E Nicholas
100
186
From 1 July 2022, the Group introduced additional remuneration of £7,500 per annum for Non-Executive Directors, for chairing a Board Committee.
Payments to former Directors
Chris Tyler resigned from the Board on 20 April 2021. He retained his role as Group Company Secretary and moved to a part time contract on
1 June 2021. He receives salary and benefits in line with other Group senior managers for this role and retains the options under the LTSP 2018
scheme granted to him prior to 20 April 2021. No other payments (2022: £nil) were made during the year ended 30 November 2023 to any
other former Directors of the Company or any other Group company.
Porvair plc Annual Report & Accounts 2023
Governance
71
Porvair plc Annual Report & Accounts 2023
Governance
72
Remuneration report
continued
INFORMATION NOT REQUIRED TO BE AUDITED
Performance graph and table
The following graph charts total shareholder return against the FTSE SmallCap Index for the last 10 years. Given the size and nature of the Group,
the FTSE SmallCap Index is considered to be the logical comparator index.
10 year total shareholder return
The table below shows the total remuneration for the Chief Executive Officer and the percentages of the maximum awards of performance related
pay received over the past ten years:
Single figure total
Annual variable
Long-term
remuneration
element
incentives
Year
CEO
£’000
% of max
% of max
2
023
Ben Stocks
1,303
88%
100%
2022
Ben Stocks
962
95%
92%
2021
Ben Stocks
665
90%
0%
2020
Ben Stocks
429
0%
0%
2019
Ben Stocks
996
57%
100%
2018
Ben Stocks
1,078
83%
100%
2017
Ben Stocks
1,029
87%
88%
2016
Ben Stocks
991
90%
95%
2015
Ben Stocks
1,151
97%
100%
2014
Ben Stocks
1,298
100%
100%
The table below shows the percentage change in remuneration of the Executive Directors and the Group’s UK employees as a whole between
2022 and 2023.
Chief Executive Officer
Group Finance Director
UK employees
Salary and fees
4%
4%
6%
Taxable benefits
22%
1%
16%
Annual bonuses
(4)%
(4)%
24%
Single figure remuneration
35%
67%
7%
The UK employees are considered a suitable comparator Group because the Chief Executive Officer and Group Finance Director are UK based and
subject to the same macro-economic conditions as other UK employees.
The table below shows the ratio between the consolidated single total figure of remuneration of the Group Chief Executive and the lower, median
and upper quartile pay of our UK employees. We have used the remuneration of the permanent full time UK employees who have been employed
throughout the year ended 30 November 2023 as the comparator Group. We have used Option A as we consider it to be the most accurate
method of comparison.
25th
50th
75th
Year
Method
percentile
percentile
percentile
2020/2021
Option A
27
21
16
2021/2022
Option A
36
28
21
2022/2023
Option A
46
39
29
25th
50th
75th
Year ended 30 November 2023
percentile
percentile
percentile
Salary
£27,240
£32,448
£43,107
Total remuneration
£28,455
£33,613
£44,965
Jan 13
Jan 14
Jan 16
Jan 15
Jan 23
Jan 17
Jan 18
Jan 1
9
Jan 20
Jan 21
Jan 22
Total R
e
turn – (R
e
bas
e
d to 100
)
—
FTSE SmallCap Ind
e
x
—
Porvair
0p
100p
200p
300p
400p
500p
600p
700p
800p
9
00p
Percentage increase/(decrease) in
remuneration in 2023 compared with 2022
The ratios are higher in the current year because 92,600 of the Chief Executive’s Long Term Share Plan shares vested in the year ended 30
November 2023 (2022: 49,680) and the Chief Executives’ pension entitlement is expressed as an increase in the capital value of his benefit
accruing in the year, whereas employees in the same scheme are included at the employers’ contribution rate. The Chief Executive has a larger
proportion of his total pay based on variable elements linked to performance than other UK employees.
The Committee has considered the wider workforce alignment of total reward with the Executive Directors. Alignment of salary percentage
increases, subject to the 2023 adjustment to James Mills’salary, and the reduction in pension contribution rates to align with the workforce are
recent examples of the Committee’s work in this area.
Relative importance of spend on pay
As required by the Remuneration Regulations, the table below compares total staff remuneration with the amounts paid in dividends to shareholders.
2022
2023
Difference
£’000
£’000
£’000
Total spend on pay
57,799
58,663
864
Dividends paid
2,478
2,664
186
Statement of voting at the Annual General Meeting
A resolution to approve the Report of the Remuneration Committee included in the 2022 Report and Accounts was passed by the shareholders at
the AGM on 18 April 2023. 97% of votes were cast in favour of the resolution. 3% of votes were cast against the resolution and 1,186,981 votes
were withheld.
A resolution to approve the Report of the Remuneration Committee included in the 2021 Report and Accounts was passed by the shareholders
at the AGM on 14 April 2022. 99% of votes were cast in favour of the resolution. 1% of votes were cast against the resolution and 632,928 votes
were withheld.
A resolution to approve the Remuneration Policy included in the 2020 Report and Accounts was passed by the shareholders at the AGM on
20 April 2021. 97% of votes were cast in favour of the resolution. 3% of votes were cast against the resolution and 947,611 votes were withheld.
Advisers to the Committee
During the year, the Committee has reviewed published surveys of the remuneration of directors of similar sized companies. Independent advice
on remuneration was taken in preparation of the revised remuneration policy. Alvarez & Marsal continued as the Remuneration Committee’s
independent advisers. The fee was £17,500.
The Committee received input into its decision-making from reports prepared by the Executive Directors, none of whom were present at any time
when their own remuneration was being considered.
Comparator group
There is not a well matched comparator group for the Group as there are no other similar UK quoted filtration and environmental technology
businesses. The selected comparator Group contains similar sized UK quoted industrial manufacturing businesses. The comparator companies are
reviewed by the Committee as part of the Remuneration Policy review every three years. The last review took place in 2023 in preparation for the
2024 Directors’ Remuneration Policy renewal.
The Committee uses data from these companies only as a guide to the competitiveness of the overall remuneration packages. We do not seek to
position our remuneration at any defined point against the benchmarks or set targets that use relative performance.
Comparator Group
Avon Protection
Dialight
Severfields
TT Electronics
Carclo
Luceco
Treatt
Xaar
Castings
Ricardo
Trifast
Zotefoams
The Committee retains the right to alter the comparator group as it sees fit in order to ensure it remains an appropriate and relevant benchmark.
Remuneration Policy
The Remuneration Policy, set out on pages 74 to 82, is subject to a vote by shareholders at the Annual General Meeting on 16 April 2024.
The Remuneration Policy, if approved, is expected to remain in force until the AGM in 2027.
On behalf of the Board
Sally Martin
Chair of the Remuneration Committee
2 February 2024
Porvair plc Annual Report & Accounts 2023
Governance
73
Porvair plc Annual Report & Accounts 2023
Governance
74
Remuneration report
continued
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
Introduction
The Group’s policy is to provide remuneration packages for its senior executives that reflect their contribution to the business, the performance of the
Group, and the need to attract and retain executives of the highest quality.
The Remuneration Committee (“the Committee”) seeks to provide straightforward and easily understood remuneration packages, which align the
interest of the Directors with those of shareholders. The Committee seeks to set remuneration guidelines that incentivise management to deliver on
the Group’s long-term strategy and short-term goals with an appropriate mix of fixed and variable pay.
The Committee aims to provide remuneration packages that:
•
are competitive, but not excessive;
•
are designed to attract, retain and motivate managers of high quality;
•
are aligned with shareholders’ interests;
•
include an element of the potential reward linked to personal performance; and
•
encourage the Executive Directors to accumulate shares in the Company.
The policy set out below will be presented for approval by shareholders at the Annual General Meeting on 16 April 2024, effective immediately
thereaſter, and will remain in force until the Annual General Meeting in 2027.
Changes from the previous policy
The Committee believes that the previous remuneration policy has served the Group and its shareholders well and, given that it is well aligned with
current best practice, does not believe that any structural changes are required. However, the Committee is concerned that by providing fixed pay
levels which are below market median requires it to reconsider the maximum bonus opportunity to ensure that the Group can continue with this
approach, whilst providing a suitably high variable opportunity.
Therefore, the historic annual bonus policy maximum of 100% of salary is to be increased to 125% (although there is no intention to increase the
opportunity for FY2024). No change is being made to the maximum opportunity for LTSP awards, which remains at 150% of salary.
This change, together with some minor wording changes, are reflected in the new policy set out overleaf.
The policy
In this forward-looking section the Group’s remuneration policies and potential future outcomes for each Executive Director and the Group’s policy
for rewarding Non-Executive Directors are described.
These policies and the individual elements of the reward package are reviewed each year to ensure that they remain in line with good practice and
support the delivery of the Group’s strategy.
Base salary
Purpose:
•
To attract and retain executives
of high quality.
Initial salaries on joining or appointment to the role are
set by reference to:
•
The level of skill and experience of the individual.
•
The scope of responsibilities required in the role.
•
Market comparators for similar roles in similar sized
quoted businesses.
Salaries are reviewed annually and fixed for a year.
The rate of increase is influenced by:
•
The annual increase given to other UK employees.
•
The current rate of UK CPI inflation.
•
Market comparators for similar roles in similar sized
quoted businesses.
Current salary levels are disclosed in the Remuneration
report. Salary increases will normally be in line with
those awarded in the UK operations of the Group.
Increases above this level may be made in specific
situations, such as progression and development in
the role; material changes to the business; or changes
to the remit or responsibilities of the executive.
Pensions
Purpose:
•
To provide a competitive package
for Executive Directors.
•
The Executive Directors are provided with a
defined contribution scheme with contributions in
line with the other UK staff or, if they choose, a cash
contribution of the equivalent percentage of salary
in lieu of pension benefits.
•
Ben Stocks is a member of the closed Porvair
Pension Plan and his benefits up to a capped limit
of salary are provided by the Plan. Above the limit
he receives a cash contribution in lieu of pension
benefits.
The level of contribution currently provided to the
Executive Directors is in line with that offered to other
UK staff which is currently at 7%.
Executive Director pension contributions will be
adjusted in line with any adjustments to the pension
contribution rate for UK staff.
The Committee may change the Directors’ pension
arrangements in response to new legislation or
regulations provided that any changes do not
materially increase the cost to the Company.
Benefits
Purpose:
•
To provide a competitive package
for Executive Directors.
Benefits comprise:
•
A company car or allowance, including car
insurance.
•
Medical insurance and health benefits.
•
Life insurance/spouse’s pension.
•
Permanent health insurance.
•
Certain professional and membership fees.
•
Relocation allowances.
The Committee reserves the power to deliver
benefits which, in aggregate, have a cost of up
to 25% of base salary.
The Committee may exceed this limit in exceptional
circumstances, including (but not limited to) where
there are changes in the underlying benefits provided;
changes to benefit providers; and changes in individual
circumstances (such as health status or location).
Remuneration component
How the component operates
Maximum payouts
The table below summarises the main components of the proposed remuneration package for Executive Directors:
Performance conditions
No performance measures apply to the fixed elements of remuneration; however the performance of the Group and the individual are taken into account
in determining annual pay and benefit awards.
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
Porvair plc Annual Report & Accounts 2023
Governance
75
Variable remuneration components
Porvair plc Annual Report & Accounts 2023
Governance
76
Remuneration report
continued
Annual bonus
Purpose:
•
To encourage and reward
actions consistent with the
near-term (annual) priorities
of the Group.
Executive Directors are eligible to participate in an
annual bonus scheme. Participation in each annual
scheme and the objectives set are entirely at the
discretion of the Committee. The Committee
administers the scheme, which is governed by terms
set out in the minutes of the Committee’s meetings.
The performance targets for the year are set following
the Group’s annual strategy review and their delivery
is assessed aſter the Group’s financial year end. The
final determination of awards is based on the Group’s
audited financial statements. The principal elements
of the scheme are:
•
The Committee determines the maximum potential
annual award at the start of each financial year.
•
An element of the annual bonus is based on the
financial performance of the Group in the year and
an element is based on the delivery of strategic
objectives, which may be financial or non-financial.
•
The annual bonus is not pensionable.
•
The bonus is paid aſter confirmation of the Group’s
annual results.
•
The payment for achievement of the threshold
financial performance target is no greater than 25%
of salary.
•
The bonus is normally paid in cash. However, the
Deferred Share Bonus Plan will require deferral
of 25% of any bonus payable to the Executive
Directors if both of the following apply:
1. If the shareholding requirement has not
been met; and
2. If the annual bonus maximum has been
set above 75% of base salary.
•
Bonus deferral may also be operated under the
Deferred Share Bonus Plan in other circumstances
in agreement with the Executive Directors.
The Committee determines, at the start of each
year, the maximum amount that the Executives may
earn under the annual bonus scheme. The maximum
that the Executives can earn in annual bonuses in
each year is disclosed in the Remuneration report.
The Committee may not offer an annual bonus
scheme with the potential to earn more than 125%
of base salary.
Remuneration component
How the component operates
Maximum payouts
Variable remuneration components
continued
Performance conditions
At the start of each financial year, the Committee sets performance targets based on Group financial operating expectations and strategic objectives
designed to reward the Executives for delivering near-term priorities of the Group. At the same time, the Committee determines the ratio of awards
between each element of the bonus.
Performance targets, set with reference to the Group’s annual operating plan and strategic priorities for the year, are disclosed in the Remuneration
report. The Group’s annual operating performance targets, which typically relate to adjusted annual operating profit, annual operating cash flow, or
similar annual operating metrics, are measured on a sliding scale with the maximum payout reserved for significant outperformance compared to plan.
The strategic targets are typically based on specific identified objectives critical to the delivery of the Group’s annual or three-year operating plans and
ESG targets; their achievement is based on the judgement of the Committee.
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
Long term share plan and share
options
Purpose:
•
To motivate and incentivise
Executive Directors to deliver
sustained performance over
the longer-term in line with
shareholder interests.
Awards under the LTSP are generally made in the form
of 2 pence options but may also be made as direct
awards of shares under the LTSP 2018. The scheme
is operated by the Committee under the specific
scheme rules. Each year the Committee determines:
•
The period of time over which performance will be
judged, which may not be shorter than three years
under the scheme rules.
•
That there will be a holding period of up to two
years following the end of the performance period,
such that the period from the date of grant to the first
time that awards may be realised will be five years.
•
The number of shares to be awarded as options and
to whom.
•
The performance criteria.
•
The level of vesting for threshold performance,
which cannot exceed 30% of the shares under award.
Vested awards may be settled by the issue of new
shares or from shares held by an Employee Benefit
Trust (“EBT”).
Shares awarded under the LTSP 2018 are subject to
malus and clawback provisions as described below.
For options issued under the LTSP 2018, aſter the
vesting period but before the end of the holding
period, the Executive may exercise the options and
sell only sufficient shares to settle the option price and
tax liability arising on the exercise. The remaining
shares must be held until the end of the holding period.
For shares awarded under the LTSP 2018, the
Executive may sell sufficient shares on vesting to settle
any tax liability arising but must hold the remainder
until the end of the holding period.
Shares or options that vest are eligible for dividend
equivalent payments for the period from award to
the end of the holding period at the discretion
of the Committee.
The Committee determines, at the start of each
year, the amount of option or award shares that the
Executives will be granted in the year. This amount is
disclosed in the Remuneration report each year. The
Committee may offer awards up to 150% of base
salary in any one year, based on the average share
price of the Group over the final quarter of the
preceding financial year.
Remuneration component
How the component operates
Maximum payouts
Variable remuneration components
continued
Performance conditions
The scheme rules require the Remuneration Committee to set performance criteria for the vesting of each LTSP award. The Committee aims to set
stretching vesting criteria based on achievement of financial goals set out in the Group’s annually updated three-year strategic plan. It seeks to set criteria
that are simple to manage and understand and which are, if applied consistently, aligned over the longer-term with the delivery of value to shareholders.
The Committee discloses in the Remuneration report the performance criteria for each unvested award including those awards to be made in the
coming year.
There is generally a minimum metric below which there is no vesting and a maximum metric which earns 100% of the award. A sliding scale of vesting
operates between the minimum and maximum.
The Remuneration Committee has adopted stretching EPS growth as the performance criteria for the LTSP as it believes that this provides a reliably
measurable target in line with the Group’s medium and long-term objectives. As part of its annual awards process, the Committee considers each year
whether this basis remains appropriate. Each year the Remuneration report discloses the prospective awards and performance conditions that will apply.
The Committee has discretion to adopt alternative performance metrics should it conclude that alternative targets better align the Executive performance
with the long-term delivery of value to shareholders.
Porvair plc Annual Report & Accounts 2023
Governance
77
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
Porvair plc Annual Report & Accounts 2023
Governance
78
Remuneration report
continued
Performance conditions
The scheme has no performance conditions.
Save as you earn scheme
Purpose:
•
To encourage and incentivise
regular saving for all UK
employees.
•
To allow UK employees to benefit
from tax efficient HMRC approved
gains from any growth in the
Group’s share price.
•
To encourage ownership
of the Group’s shares.
UK employees are entitled to subscribe for options
under the Group’s three and five year Save As You
Earn Schemes. The scheme is governed by the rules
set out in the Porvair plc SAYE Share Options Plans
2014 and 2024.
The Group offers new SAYE schemes to coincide
with the maturity of previous SAYE schemes.
The scheme rules allow the options to be issued at
up to a 20% discount to the prevailing market price,
which is determined at the time the offer is made to
employees, generally approximately two months
before the start of the scheme.
At the end of the savings period, provided the
employee has maintained the monthly savings plan,
the option shares vest and the employee has the
choice of a return of the cash saved in the building
society account or to use the savings to acquire the
option shares. The options must be exercised within
six months of the date of vesting.
Vested awards may be settled by the issue of new
shares or, for issues made aſter the 2015 Annual
General Meeting, from shares held by an Employee
Benefit Trust (“EBT”).
Non-Executive Directors may not join the scheme.
SAYE schemes allow a maximum of £500 per month
to be saved. The Group offers three and five year
saving schemes. The number of shares under option
is determined by the amount saved in an authorised
building society account plus interest over the vesting
period divided by the option price determined at the
date of subscription to the scheme.
Remuneration component
How the component operates
Maximum payouts
Variable remuneration components
continued
Shareholding requirement
The Committee has set a target for Executive Directors to hold the equivalent of at least the value of two year’s base salary in Porvair shares within
five years of joining the Board.
A post-employment shareholding requirement is also in place and will apply to all shares vesting from incentive awards granted aſter the adoption
of this policy. In the first year post-employment, executive directors will normally be required to hold the lower of their applicable shareholding on
leaving employment or 200% of their final base salary. In the second year post-employment they will normally be required to hold the lower of their
applicable shareholding on leaving employment or 100% of final base salary.
External appointments
Executive Directors are able to undertake one Non-Executive Directorship outside the Company with the consent of the Board. Any fees received
may be retained by the Director.
Discretions
The Committee retains certain discretions over the management and operation of the variable elements of the Executive Directors’ remuneration.
The annual bonus scheme is discretionary and therefore the Committee retains full authority to vary its terms and its payouts in each financial year.
Its powers are limited by the maxima set out in this policy and by the limits it sets for the Executives within the Committee minutes. The limits for each
annual bonus are published in advance in the Remuneration report.
The long-term share plans are governed by the scheme rules approved by shareholders. The rules of the scheme allow for the fair operation of the
scheme through discretions delegated to the Committee. Under these discretions the Committee may:
•
waive the requirement for the employee to pay the employer's National Insurance;
•
grant options with a shorter life than 10 years;
•
award the option holder with additional shares equivalent to the dividends that the option holder would have earned if the shares had been held
throughout the option period;
•
increase the number of shares that can be exercised by a good leaver or the personal representatives of an employee dying in service, which
would normally be based on the proportion of the performance period that has elapsed prior to their cessation of employment, having due
regard for the likelihood that the performance conditions will be met;
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
•
allow an employee leaving for reasons other than as a good leaver to be able to exercise their options aſter the date that they have given notice to
leave employment;
•
amend the performance conditions if an event has occurred such that the performance of the Company should be measured by a fairer measure
affording a more effective incentive to the employee;
•
in determining whether a performance condition has been met, make such adjustments as they consider necessary to take account of underlying
performance;
•
determine whether performance conditions have been met in the event of a corporate event such as change of control or demerger;
•
in the event of a change of control, in exceptional circumstances, permit more award shares or options to become vested than would be
calculated by the proportion of the performance period that has elapsed;
•
in the event of a rights issue or capitalisation issue, make such adjustments as it considers appropriate to the number of shares under option;
and/or
•
make minor amendments to the plan to improve its administration, reflect changes in legislation, or to maintain favourable tax treatment for the
participants or the Company.
Long Term Share Plan – Performance adjustment (malus)
The Committee may, at its absolute discretion, require an Executive Director to forfeit all or a proportion of the unvested award shares and/or all or
a proportion of the vested award shares in respect of which the option award has not otherwise been settled, in the exceptional circumstances of
corporate failure, reputational damage, misconduct or misstatement by the Executive Director (or for which the Executive Director is determined,
in the Committee's absolute discretion, to be solely or jointly accountable). The terms of any forfeiture shall be determined by the Committee.
Long Term Share Plan – Forfeiture of vested awards (clawback)
At the award date, the Committee determines whether an award should be granted subject to clawback. If it is decided that the award should be
subject to clawback then in the exceptional circumstances of corporate failure, reputational damage, misconduct or misstatement by the Executive
Director (or for which the Executive Director is determined, in the Committee's absolute discretion, to be solely or jointly accountable), which had
it been known at the time of vesting would have caused the Committee to take a different decision regarding the vesting of the award shares, the
Committee may, in its absolute discretion, take any or all of the following steps in respect of the vested award shares:
•
reduce the number of unvested award shares to which the Executive Director is entitled under any other award and/or proportion of the vested
award shares in respect of which the Executive Director has not exercised an option award (or in respect of which the option award has not
otherwise been settled);
•
require the Executive Director to transfer any vested award shares back to the Company, or to such other person or persons as the Company shall
nominate, for nil consideration;
•
reduce the amount of any further awards to be granted to the Executive Director;
•
reduce the amount of any cash bonus or shares payable to the Executive Director under any other plan operated by the Company; and/or
•
require the Executive Director to pay to the Company or any Group company an amount equal to the amount of any or all of the proceeds the
Executive Director realised on the disposal of any of the shares acquired pursuant to the award.
When enforcing the clawback terms, the Committee shall take into account:
•
the amount (if any) paid by the Executive Director to acquire any shares in relation to the award;
•
the amount of tax and national insurance contributions actually paid or still to be paid by the Executive Director in relation to the award or the sale
of any of the shares acquired in relation to the award (aſter taking account of any relief available); and
•
the number of shares subject to the award that would have vested (if any) had the misconduct or misstatement been known by the Remuneration
Committee at the time.
If the Committee wishes to exercise its right to enforce clawback in respect of any award (or part of an award) in accordance with its powers, it shall
communicate the clawback terms to the Executive Director in writing on or around the time that the misconduct or misstatement is discovered.
Clawback ceases to apply to any award (or part of an award) aſter three years from the date on which the award shares became vested award shares.
Porvair plc Annual Report & Accounts 2023
Governance
79
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
Porvair plc Annual Report & Accounts 2023
Governance
80
Remuneration report
continued
Annual Bonus – Malus and Clawback
The annual bonus is discretionary and therefore the Committee retains full authority to vary its terms each year within the framework set out in this
policy. In the exceptional circumstances of corporate failure, reputational damage, misconduct or misstatement by the Executive Director, the
Committee may take any, or all, of the following steps:
•
Cancel or reduce the bonus earned by the Executive Director in the year in which the misconduct or misstatement comes to light.
•
Reduce the amount of awards in future years.
•
Require the Executive Director to repay bonuses and deferred bonuses relating to the financial years affected by the misconduct or misstatement.
When enforcing any clawback of bonus the Committee will take into account amounts of tax and national insurance paid, or still to be paid in
relation to previously awarded bonuses, which cannot be recovered.
Estimate of the total future potential remuneration
The charts below set out estimates of the potential remuneration for each of the Executive Directors based on their remuneration packages for the
year ending 30 November 2024, using the LTSP awards to be made in 2024 to calculate the variable element of pay. The assumptions included in
each scenario are described below:
Fixed
•
Consists of base salary, pension and benefits.
•
Base salary is the current salary.
•
Benefits are assumed to be in line with those received in 2023.
•
Pensions are assumed to be in line with current practice.
For performance in line with both the annual and three-year operating plan and assuming no share price increase, based on:
•
Annual bonus of 35% of salary.
•
Long term share plan (“LTSP”) award of 25% of maximum.
For performance significantly above both the annual and three-year operating plan and assuming no share price increase,
the maximum award is based on:
•
Annual bonus of 100% of salary.
•
LTSP award of 150% of salary.
For the maximum award assuming a 50% increase in the share price the calculation is based on:
•
Annual bonus for 125% of salary.
•
LTSP award of 150% of salary.
Remuneration (£000s)
£1,800
£1,600
£1,400
£1,200
£1,000
£800
£600
£400
£200
£0
63%
100%
£442
£704
33%
19%
18%
£1,343
40%
28%
22%
£1,
6
13
50%
Mini
m
u
m
Target
Maxi
m
u
m
James Mills
, Grou
p
Finance Director
61%
100%
£2
6
0
£42
6
31%
20%
19%
£832
28%
Max with
5
0% share
p
rice growth
for LT
SP
26%
23%
£1,004
51%
Long-term incentives
Annual bonus
Fixed pay
41%
Mini
m
u
m
Target
Maxi
m
u
m
Ben Stocks
, Grou
p
Chief Executive Officer
Max with
5
0% share
p
rice growth
for LT
SP
27%
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
Fees
Cash fees normally paid on a monthly basis.
Fees are reviewed annually.
Non-Executive Directors receive a fixed annual fee, which reflects their time
commitment to the business and comparatives from similar sized quoted companies,
plus expenses reimbursement.
Non-Executives are not eligible for any bonus or incentive or pension schemes.
Additional fees are paid for chairing a committee of the Board but no additional fee
is paid for acting as Senior Non-Executive Director. The Board reserves the right to
introduce this in appropriate circumstances.
There is no prescribed maximum
individual fee or fee increase, but fees
are subject to the cap set out in the
Articles of Association which may be
revised from time to time but only
with shareholder approval.
Current fee levels are set out below
for information.
Remuneration
component
How the component operates
Maximum payout
Policy on Non-Executive Directors
The Non-Executive Directors receive letters of appointment with a maximum notice of three months. They are subject to annual re-election, in
common with the Executive Directors, in accordance with the best practice set out in the UK Corporate Governance Code. In the event that a
Non-Executive Director fails to be re-elected at the Annual General Meeting, they are required to resign with immediate effect. The remuneration
policy for Non-Executive Directors is set out below.
The current scale of remuneration is:
£’000
Chair
106
Base fee for other Non-Executive Directors
44
Additional fee for chairing a Board Committee
7.5
Engagement with shareholders
The Committee considers shareholder feedback received during the AGM and any other shareholder meetings as part of its annual review of its
remuneration. The Chair of the Remuneration Committee is available, on request, to discuss issues of remuneration with shareholders of the Group.
Where the Remuneration Committee proposes to make material changes to the remuneration policy or the way that it is implemented or to
introduce a new long-term incentive plan, the Committee seeks the views of major shareholders prior to seeking, where required, general
shareholder approval at a general meeting.
Consultations were held with a number of major shareholders prior to the 2024 AGM to explain the terms of the proposed remuneration policy,
positive feedback was received from all respondents.
Relationship with employees’ pay
All employees receive a salary, pension and benefit package with levels of salary commensurate with their responsibilities. Executives throughout
the Group participate in various bonus schemes designed to reward good performance in their operations.
The Committee takes into account proposed or agreed changes to employees’ pay and conditions as part of its review of the remuneration of
Executive Directors. Except in exceptional circumstances, this results in the percentage annual pay increases awarded to Executive Directors being
broadly in line with the percentage increases applied to other UK employees.
The Committee maintains an overview of the remuneration policies throughout the Group. It seeks to ensure that employees are paid a market rate
for their particular roles and that there is consistency in targets set where performance related pay might be awarded. Employees are not consulted
in the process of setting the policy for Executive Directors’ remuneration.
Recruitment of Directors
In the event that the Company appoints a new director, in determining appropriate remuneration arrangements, the Committee will take into
consideration all relevant factors (including but not limited to quantum, the type of remuneration being offered and the candidate’s background)
to ensure that arrangements are in the best interests of both the Company and its shareholders without paying more than is necessary to recruit a
director of the required calibre. The Committee will align the remuneration package offered with the remuneration policy outlined in the policy
table on pages 75 to 78.
Depending on an individual’s prior experience, the Committee may set salary below market norms, with the intention that it is realigned over time,
typically two to three years, subject to performance in the role. In this situation, the Committee is permitted to exceed the “normal” rate of annual
salary increase set out in the policy table on page 75.
Porvair plc Annual Report & Accounts 2023
Governance
81
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
Porvair plc Annual Report & Accounts 2023
Governance
82
In the year of appointment, the Committee may offer additional remuneration arrangements that it considers appropriate and necessary to recruit
and retain the individual. The Committee may authorise:
•
awards to ‘buy-out’ remuneration arrangements forfeited on leaving a previous employer. In such circumstances any arrangement will only
compensate for remuneration foregone. The Committee will take account of relevant factors including any performance conditions attached to
these awards, the form in which they were granted (e.g. cash or shares) and the time over which they would have vested. Any ‘buy-out’ of long-
term incentives on joining or initial incentives would normally be made under the LTSP 2018, and therefore subject to the rules of that scheme,
but may be made outside of the LTSP 2018 using exemptions permitted under the Listing Rules;
•
an award made under the LTSP 2018 in the first financial year of service which would be limited to a maximum of 250% of basic salary on joining,
subject to suitably stretching performance criteria and a minimum vesting period of three years. An award in excess of the normal annual limit
would only be made in exceptional circumstances; and
•
other payments in relation to relocation expenses and other incidental expenses as appropriate.
For internal promotions, the Committee reserves the right to satisfy pre-existing executive incentive awards and other obligations which may be in
place at the time of appointment.
Service contracts and policy in respect of payments for loss of office
The Executive Directors have rolling contracts with the Company which can be terminated by either party giving twelve months’ notice. This is
considered to be an appropriate balance between flexibility and commitment by both parties.
Executive Directors’ employment contracts provide for the Executive to receive salary; private medical insurance; use of a company car; and
participate in the Group’s annual bonus, share option plans and pension scheme.
Payments for loss of office are determined by the Committee based on the contractual entitlements of the Director concerned under service
contracts and the terms of the Porvair plc LTSP 2018 and Porvair plc SAYE share option plans 2014 and 2024.
Service contracts do not provide explicitly for termination payments or damages but the Company may make payments in lieu of notice. For this
purpose, pay in lieu of notice would normally consist of base salary and other relevant emoluments for the relevant notice period but would always
exclude any bonus or incentive payments. In addition, the Company has discretion in certain circumstances to pay certain fees relating to the
termination; for example, fees for legal advice received by the Executive Director and fees for outplacement services. The Company may pay
any statutory entitlements or settle or compromise claims in connection with a termination of employment where considered in the best interests
of the Company.
Annual bonus payments are normally only payable to Executives that are in employment and not in a notice period at the date when the bonuses
are approved by the Committee. However, an annual bonus may be payable with respect to the proportion of a financial year served, although it
would be pro-rated for time and paid at the normal payment date. Any deferred share element could be paid in cash. Any outstanding deferred
bonus may be released or paid in cash subject to the terms of the relevant plan rules.
The LTSP and SAYE plans have normal good leaver and bad leaver provisions which determine the extent to which options and awards may be
vested and exercised in the event of the Executive leaving the Group. The schemes also include provisions to determine the extent that options
may be exercised or award shares received in the event of a change in control of the Group.
For good leavers under the LTSP, awards will usually vest at the normal vesting date, subject to the satisfaction of any performance conditions and
will be reduced pro-rata in accordance with the plan rules. However, the Remuneration Committee has discretion to allow awards to vest at an
earlier date and discretion to disapply the normal pro-rata reduction.
When making decisions regarding the treatment of remuneration at the date of termination, the particular circumstances of the Executive Director’s
loss of office will be taken into account by the Committee to determine the extent to which mitigation of payments should apply; LTSP and SAYE
options can be vested and exercised; and the extent to which payments under the discretionary annual bonus plan would be paid.
Remuneration Policy to be presented to and approved at the Group’s 2024 AGM
Remuneration report
continued
Porvair plc Annual Report & Accounts 2023
Financial statements
83
Opinion
We have audited the financial statements of Porvair plc (the ‘parent
company’) and its subsidiaries (the ‘Group’) for the year ended 30
November 2023, which comprise the Consolidated income statement,
Consolidated statement of comprehensive income, Consolidated balance
sheet, Consolidated cash flow statement, Consolidated statement of
changes in equity, Parent company balance sheet, Parent company
statement of changes in equity and notes to the financial statements,
including significant accounting policies. The financial reporting framework
that has been applied in the preparation of the Group financial statements is
applicable law and UK-adopted International Accounting Standards. The
financial reporting framework that has been applied in the preparation of the
parent company financial statements is applicable law and United Kingdom
Accounting Standards including FRS 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted Accounting Practice).
In our opinion:
•
the financial statements give a true and fair view of the state of the
Group’s and of the parent company’s affairs as at 30 November 2023
and of the Group’s profit for the year then ended;
•
the Group financial statements have been properly prepared in
accordance with UK-adopted International Accounting Standards;
•
the parent company financial statements have been properly prepared
in accordance with United Kingdom Generally Accepted Accounting
Practice; and
•
the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the
audit of the financial statements section of our report. We are independent
of the Group and parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed public interest
entities and we have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit
Group
matters
•
Warranty provisions
Parent Company
•
None
Materiality
Group
•
Overall materiality: £1,000,000 (2022: £936,000)
•
Performance materiality: £750,000 (2022: £702,000)
Parent Company
•
Overall materiality: £200,000 (2022: £331,500)
•
Performance materiality: £150,000 (2022: £248,000)
Scope
Our full scope and specific audit procedures covered
94% of revenue, 89% of total assets and 95% of profit
before tax.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the Group and parent company financial
statements of the current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on the overall audit strategy,
the allocation of resources in the audit and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the Group and parent company financial statements as a whole, and
in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
Independent Auditor’s report to the members of Porvair plc
The Group is party to a number of long-term contracts in respect of major projects, including gasification projects
entered into in previous years and other contracts, which commenced in previous years and in the year ended
30 November 2023.
A number of these contracts contain warranties and management have assessed the likelihood of economic
outflows in relation to these contracts and, where considered probable, have made provisions based on their best
estimates of the probable economic outflows.
In making these provisions, management are required to exercise a high degree of judgement and estimation and
as a result of the level of judgement and estimation involved, the valuation of provisions has been identified as a
potential fraud risk.
Management have recognised provisions of £3.6 million as at 30 November 2023, £3.2 million of which relates
to warranties and £1.3 million relates to a single customer.
Due to the high degree of judgement and estimation involved, as well as the quantum of the provisions and the
potential risk of fraud, these provisions are considered to be a key audit matter.
Our response to the risk included:
•
Understanding management’s warranty provisioning process and evaluating the appropriateness of the
accounting policy;
•
Reading and challenging management’s papers in respect of significant provisions and assessing the
recognition of provisions in the context of IAS 37;
•
Discussion of the latest position with management, including discussion where necessary with individuals in
the operational teams directly responsible for the contract in the components in which the provisions are made;
•
Audit of the inputs to the calculations to supporting evidence and checking the arithmetic accuracy of the
calculations;
•
Challenging management on the appropriateness of the judgements and estimates made; and
•
Auditing the presentation and disclosures in the financial statements.
Based on the results of the audit procedures outlined above, we consider management’s assessment of the
existence and valuation of provisions for warranties to be reasonable.
Disclosure of the estimates and judgements made by management in respect of the provisions and the changes in
the provisions since the previous year is included in Note 1 (Key sources of estimation uncertainty) and in Note 21
of the consolidated financial statements.
Key audit matter
description
How the matter was
addressed in the audit
Key observations
Warranty provisions
No key audit matters have been identified in respect of the parent company financial statements.
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures.
When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could reasonably influence the
economic decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on our professional judgement,
we determined materiality as follows:
Overall materiality
Group
£1,000,000 (2022: £936,000)
5% (2022: 5%) of profit before tax
Profit before tax is considered to be the most
appropriate benchmark as it is a key performance metric
for the users of the consolidated financial statements.
£750,000 (2022: £702,000)
75% of overall materiality
Misstatements in excess of £50,000 and misstatements
below that threshold that, in our view, warranted
reporting on qualitative grounds.
Parent company
£200,000 (2022: £331,500)
0.2% (2022: 0.4%) of net assets
Net assets is considered to be the most appropriate
benchmark for the parent company as it is primarily
a holding company.
£150,000 (2022: £248,000)
75% of overall materiality
Misstatements in excess of £10,000 and misstatements
below that threshold that, in our view, warranted
reporting on qualitative grounds.
Reporting of misstatements
to the Audit Committee
Basis for determining
performance materiality
Performance materiality
Rationale for
benchmark applied
Basis for determining
overall materiality
Porvair plc Annual Report & Accounts 2023
Financial statements
84
Independent Auditor’s report to the members of Porvair plc
continued
Porvair plc Annual Report & Accounts 2023
Financial statements
85
An overview of the scope of our audit
Porvair plc is a multi-national group operating across the UK, Europe, the US, and Asia. Its key operations are located in the UK and the US, with its
headquarters in the UK. During the year ended 30 November 2023 the Group consisted of 20 components, located in the following countries:
•
UK
•
USA
•
The Netherlands
•
Germany
•
Hungary
•
China
•
India
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing the risks of
material misstatement at the Group level.
Based on our assessment of the Group, we focused our Group audit scope primarily on Group businesses in the UK and the significant operations in the US.
Four components were subject to a full scope audit performed by the Group auditor.
In addition, six other components were subject to targeted audit procedures on certain account balances, where the extent of our testing was based on our
assessment of the risks of material misstatement and of the materiality of the Group’s operations at those businesses. This category included one component
that was assessed as significant based on risk with targeted procedures performed on that risk and other significant balances, and five non-significant
components with targeted audit procedures performed on significant balances including revenue, receivables and inventory. Our audit work for each
component was executed at levels of materiality applicable to each individual component, which were not higher than Group materiality.
The table below shows the coverage of the Group achieved by components.
Number of
Total
Profit
components
Revenue
assets
before tax
Full scope audit
4
47%
64%
57%
Targeted audit procedures
6
47%
25%
38%
Reduced scope review procedures
10
6%
11%
5%
Total
20
100%
100%
100%
Further specific audit procedures over the Group consolidation and areas of significant judgement including impairment of goodwill, business
combinations, share based payments, defined benefit pension liability, leases and taxation were performed.
The Group audit team performed all audit procedures and no component auditors were used.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is appropriate. Our evaluation of the directors’ assessment of the Group’s and parent company’s ability to continue to adopt the going concern
basis of accounting included:
•
Obtaining and assessing management’s assessment of going concern for the going concern assessment period.
•
Obtaining an understanding of management’s going concern model and how the impacts of inflation and climate risk have been reflected in the model.
•
Checking the mathematical accuracy of management’s forecasts.
•
Assessing and challenging assumptions in management’s forecasts.
•
Assessing the reliability of management’s forecasting, including comparison of historic forecasts to actual results and comparison of current forecasts
to post year-end results.
•
Corroborating cash balances and banking facilities at the reporting date and re-calculating compliance with banking covenants.
•
Assessing the stress-testing completed by management and completing further stress-testing on cashflow forecasts.
•
Assessing the completeness and accuracy of the disclosures made in the financial statements in respect of going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the Group’s or the parent company’s ability to continue as a going concern for a period of at least twelve months from when
the financial statements are authorised for issue.
In relation to the entity’s reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in
relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis
of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon.
The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent
with the financial statements and those reports have been prepared in accordance with applicable legal requirements;
•
the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures, given
in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial Conduct Authority (the FCA
Rules), is consistent with the financial statements and has been prepared in accordance with applicable legal requirements; and
•
information about the company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their
committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent company and their environment obtained in the course of the audit,
we have not identified material misstatements in:
•
the Strategic Report or the Directors’ Report; or
•
the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures,
given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in
our opinion:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not
visited by us; or
•
the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting
records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
•
we have not received all the information and explanations we require for our audit; or
•
a corporate governance statement has not been prepared by the parent company.
Corporate governance statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating
to the parent company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is
materially consistent with the financial statements and our knowledge obtained during the audit:
•
Directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified;
•
Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate;
•
Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities;
•
Directors’ statement on fair, balanced and understandable;
•
Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks;
•
Section of the annual report that describes the review of effectiveness of risk management and internal control systems; and
•
Section describing the work of the audit committee.
Porvair plc Annual Report & Accounts 2023
Financial statements
86
Independent Auditor’s report to the members of Porvair plc
continued
Porvair plc Annual Report & Accounts 2023
Financial statements
87
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend
to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis
of these financial statements.
The extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities are instances of non-compliance with laws and regulations. The objectives of our audit are to obtain sufficient appropriate audit evidence
regarding compliance with laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial
statements, to perform audit procedures to help identify instances of non-compliance with other laws and regulations that may have a material effect on the
financial statements, and to respond appropriately to identified or suspected non-compliance with laws and regulations identified during the audit.
In relation to fraud, the objectives of our audit are to identify and assess the risk of material misstatement of the financial statements due to fraud, to obtain
sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud through designing and implementing appropriate
responses and to respond appropriately to fraud or suspected fraud identified during the audit.
However, it is the primary responsibility of management, with the oversight of those charged with governance, to ensure that the entity's operations are
conducted in accordance with the provisions of laws and regulations and for the prevention and detection of fraud.
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud, the Group audit engagement team:
•
obtained an understanding of the nature of the industry and sector, including the legal and regulatory frameworks that the Group and parent company
operate in and how the Group and parent company are complying with the legal and regulatory frameworks;
•
inquired of management, and those charged with governance, about their own identification and assessment of the risks of irregularities, including any
known actual, suspected or alleged instances of fraud;
•
discussed matters about non-compliance with laws and regulations and how fraud might occur including assessment of how and where the financial
statements may be susceptible to fraud.
The most significant laws and regulations were determined as follows:
•
Review of the financial statement disclosures and testing to supporting documentation.
•
Completion of disclosure checklists to identify areas of non-compliance.
•
Inspection of advice received from internal/external tax advisors.
•
Inspection of correspondence with local tax authorities.
•
Consideration of whether any matter identified during the audit required reporting to an appropriate authority
outside the entity.
•
Inquiry of management and where appropriate, those charged with governance and inspection of legal
and regulatory correspondence, if any.
IFRS, FRS 101, Companies
Act 2006 and Listing Rules
Tax compliance
regulations
Health and
safety legislation
Legislation/
Additional audit procedures performed by the Group audit
Regulation
engagement team included:
The areas that we identified as being susceptible to material misstatement due to fraud were:
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters which we are required to address
Following the recommendation of the audit committee, we were appointed by the board on 15 September 2020 to audit the financial statements for
the year ending 30 November 2020 and subsequent financial periods.
The period of total uninterrupted consecutive appointments is 4 years, covering the years ended 30 November 2020 to 30 November 2023.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the parent company and we remain independent
of the Group and the parent company in conducting our audit.
Our audit opinion is consistent with the additional report to the audit committee in accordance with ISAs (UK).
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s 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 and the company’s members
as a body, for our audit work, for this report, or for the opinions we have formed.
In due course, as required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements
will form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in
accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditor’s report provides no assurance over whether the annual financial report
has been prepared using the single electronic format specified in the ESEF RTS.
Graham Ricketts (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
25 Farringdon Street
London EC4A 4AB
2 February 2024
Risk
Audit procedures performed by the audit engagement team:
For project revenue procedures included:
•
Evaluating the application of IFRS 15 to contracts, including the identification of performance obligations and
whether revenue is recognised over time or at a point in time.
•
Assessing and challenging the assumptions and estimates used in recognition of revenue on projects where
revenue is recognised over time.
For revenue from sale of goods procedures included:
•
Investigating transactions posted to nominal ledger codes outside of the normal revenue cycle as identified
using a data analytic tool.
•
Testing cut-off, including checking shipping terms and obtaining evidence from third parties of
delivery /collection to confirm that the sale has been recognised in the correct period.
•
Testing the completeness of revenue by obtaining and testing the GDN listing for any instances where a
corresponding sales invoice did not exist.
Audit procedures performed on provisions are outlined in the Key Audit Matter section of this audit report.
•
Testing the appropriateness of journal entries and other adjustments.
•
Assessing whether the judgements made in making accounting estimates are indicative of a potential bias.
•
Evaluating the business rationale of any significant transactions that are unusual or outside the normal course
of business.
Project revenue recognition
and cut-off and completeness
in relation to revenue from
sale of goods
Warranty provisions
Management override
of controls
Porvair plc Annual Report & Accounts 2023
Financial statements
88
Independent Auditor’s report to the members of Porvair plc
continued
89
Porvair plc Annual Report & Accounts 2023
Financial statements
Consolidated income statement
For the year ended 30 November
Note
2023
£’000
2022
£’000
Continuing operations
Revenue
2,3
Cost of sales
(113,719 )
(113,597 )
Gross profit
Distribution costs
(2,569 )
(2,759 )
Administrative expenses
(38,485 )
(36,409 )
Adjusted operating profit
2,3
Adjustments:
Amortisation of acquired intangible assets
2
(872 )
(688 )
Other acquisition-related costs
2
(459 )
Operating profit
2,3
Finance income
Finance costs
6
(1,276 )
(1,072 )
Profit before tax
3,4
Adjusted income tax expense
(4,324 )
(4,169 )
Adjustments:
Tax effect of adjustments to operating profit
2
Income tax expense
7
(4,120 )
(4,024 )
Profit for the year
Earnings per share (basic)
8
Earnings per share (diluted)
8
Adjusted earnings per share (basic)
8
Adjusted earnings per share (diluted)
8
Consolidated statement of comprehensive income
For the year ended 30 November
2023
£’000
2022
£’000
Profit for the year
Other comprehensive (loss)/income
Items that will not be reclassified to profit or loss:
Actuarial gain in defined benefit pension plans net of tax
Items that may be subsequently reclassified to profit or loss:
Exchange (loss)/gain on translation of foreign subsidiaries
(4,628 )
Total other comprehensive (loss)/income for the year
(4,401 )
Total comprehensive income for the year
90
Porvair plc Annual Report & Accounts 2023
Financial statements
Consolidated balance sheet
Company registered number 01661935
As at 30 November
Note
2023
£’000
2022
£’000
Non-current assets
Property, plant and equipment
10
Right-of-use assets
11
Goodwill and other intangible assets
12
Deferred tax asset
19
Current assets
Inventories
14
Trade and other receivables
15
Derivative financial instruments
13
Cash and cash equivalents
16
Current liabilities
Trade and other payables
17
(23,827 )
(27,881 )
Bank overdraſts
16
(2,787 )
Current tax liabilities
(594 )
(309 )
Lease liabilities
11
(2,057 )
(2,156 )
Derivative financial instruments
13
(319 )
Provisions
21
(3,243 )
(3,692 )
(32,508 )
(34,357 )
Net current assets
Non-current liabilities
Borrowings
18
Deferred tax liability
19
(3,583 )
(2,811 )
Retirement benefit obligations
20
(7,713 )
(9,816 )
Other payables
(123 )
Lease liabilities
11
(11,342 )
(9,316 )
Provisions
21
(363 )
(328 )
(23,124 )
(22,271 )
Net assets
Capital and reserves
Share capital
22
Share premium account
22
Cumulative translation reserve
Retained earnings
Equity attributable to owners of the parent
The financial statements on pages 89 to 127 were approved by the Board of Directors on 2 February 2024 and were signed on its behalf by:
B D W Stocks
J A Mills
91
Porvair plc Annual Report & Accounts 2023
Financial statements
Consolidated cash flow statement
For the year ended 30 November
Note
2023
£’000
2022
£’000
Cash flows from operating activities
Cash generated from operations
24
Interest paid
(452 )
(403 )
Tax paid
(3,027 )
(4,118 )
Net cash generated from operating activities
Cash flows from investing activities
Interest received
Acquisition of subsidiaries
25
(9,957 )
(1,000 )
Settlement of debt acquired on acquisition
25
(3,955 )
Purchase of property, plant and equipment
10
(4,702 )
(4,826 )
Purchase of intangible assets
12
(107 )
(61 )
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
(18,599 )
(5,870 )
Cash flows from financing activities
Proceeds from issue of ordinary shares
22
Purchase of Employee Benefit Trust shares
(745 )
(749 )
Proceeds of loans and borrowings
Repayments of loans and borrowings
(9,818 )
(4,986 )
Dividends paid to shareholders
9
(2,664 )
(2,478 )
Repayments of lease liabilities
11
(2,551 )
(2,503 )
Net cash used in financing activities
(5,808 )
(10,165 )
Net (decrease)/increase in cash and cash equivalents
(3,807 )
Effects of exchange rate changes
(438 )
(4,245 )
Cash and cash equivalents at 1 December
Cash and cash equivalents at 30 November
16
Reconciliation of net cash flow to movement in net cash/(debt)
2023
£’000
2022
£’000
Net cash/(debt) at 1 December
6,825
(2,006)
(Decrease)/increase in cash and cash equivalents
(3,807)
2,242
Net movement in borrowings
–
4,986
Net debt acquired in the year
(3,955)
–
Settlement of debt acquired on acquisition
3,955
–
(Increase)/decrease in lease liabilities
(2,168)
1,194
Effects of exchange rate changes
(197)
409
Net cash at 30 November
653
6,825
Net cash and bank debt
14,052
18,297
Lease liabilities
(13,399)
(11,472)
Net cash at 30 November
653
6,825
92
Porvair plc Annual Report & Accounts 2023
Financial statements
Consolidated statement of changes in equity
For the year ended 30 November
Note
Share
capital
£’000
Share
premium
account
£’000
Cumulative
translation
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
At 1 December 2021
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Purchase of own shares (held in trust)
(749 )
(749 )
Issue of ordinary share capital
22
Share-based payments (net of tax)
Dividends paid
9
(2,478 )
(2,478 )
At 30 November 2022
Profit for the year
Other comprehensive (loss)/income
(4,628 )
(4,401 )
Total comprehensive (loss)/income for the year
(4,628 )
Purchase of own shares (held in trust)
(745 )
(745 )
Issue of ordinary share capital
22
Share-based payments (net of tax)
Dividends paid
9
(2,664 )
(2,664 )
At 30 November 2023
93
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
1
Summary of significant accounting policies
Exchange. The Company is registered in England and Wales and its registered office is 7 Regis Place, Bergen Way, King’s Lynn, PE30 2JN.
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise stated. These statements are presented in UK Pounds Sterling, with all
values rounded to the nearest 1,000 except where otherwise indicated.
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with The Companies Act 2006 and UK-adopted
International Accounting Standards. The Company has elected to prepare its entity accounts in accordance with United Kingdom Generally
Accepted Accounting Practice (“UK GAAP”), including Financial Reporting Standard 101 –
Reduced Disclosure Framework
(FRS101), and these
are presented on pages 128 to 137. The financial statements have been prepared on a going concern basis and under the historical cost
convention as modified by the recognition of certain financial assets and financial liabilities (including derivative financial instruments) at fair value
through profit or loss.
Basis of consolidation
The Group applies the acquisition method to account for business combinations. The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 November each year. Control is achieved
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity. On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values
at the date of acquisition. Any excess of the fair value of consideration over the fair value of identifiable net assets acquired is recognised as
goodwill. Acquisition-related costs are expensed as incurred. The results of subsidiaries acquired or disposed of during the year are included in
the consolidated income statement from the date on which control is transferred to the Group and are deconsolidated from the date on which
control ceases. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line
Subsequent changes to the fair value of contingent consideration are recognised in profit or loss. All intra-group transactions, balances, income
and expenditures are eliminated on consolidation.
Going concern
The Directors have made appropriate enquiries and reviewed the current financial position, including all the information presented in its strategic
review of the business and the forecast covering the twelve months from the date of this report (“the going concern assessment period”) and have
considered foreseeable downsides, stress tests and scenarios. The Directors have a reasonable expectation that the Group and Company have
adequate resources to continue in operational existence for the going concern assessment period. Accordingly, they continue to adopt the going
concern basis in preparing the financial statements. Further detail is contained in the viability statement and going concern disclosure included in
the Strategic report on pages 26 and 27.
Accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, the Directors are required to make judgements, estimates and assumptions about the
carrying value of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on
historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate
is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and
future periods.
(a)
Significant judgements in applying the Group’s accounting policies
In the course of preparing the financial statements, certain judgements may be made when applying the Group’s accounting policies, other than
those involving estimations, which may have a significant, rather than critical, effect on the amounts recognised in the financial statements.
These are as follows:
•
Revenue recognition
Judgement can be required when determining the performance obligations within a customer contract; whether or not a product is bespoke; and
whether an enforceable right to payment for work completed to date includes a reasonable profit margin. These judgements may impact the
timing and quantum of revenue recognised.
•
Recognition of warranty provisions on project filtration systems
Judgement can be required when assessing whether future economic outflows are probable or possible, in relation to past events. These
judgements may inform whether or not a provision is recognised.
•
Research and development costs
Judgement can be required when assessing whether expenditure in the period on research and development activity meets all of the necessary
criteria to support the recognition as an intangible asset. Key judgements can include an assessment of technical feasibility and the probability that
the research and development expenditure will generate future economic benefits. Management make judgements across the project portfolio
and have concluded that no expenditure in 2023 meets all of the necessary IAS 38 criteria.
94
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
(b) Key sources of estimation uncertainty
Estimates and assumptions are made in particular with regard to: goodwill and intangible asset valuations (cash flows and discount rate);
impairment testing; the fair value of contingent consideration on acquisition; establishing uniform depreciation and amortisation periods for
the Group; assumptions used in the calculation of share-based payments; allocating fixed and variable production overheads to inventories;
parameters for measuring pension and other provisions; the uncertainties relating to the interpretation of tax legislation; and the likelihood that
tax assets can be realised.
Climate change has been considered within the going concern cash flow projections, impairment reviews and viability assessments. The impact
of climate change is not currently deemed to have a significant impact on these assessments and is therefore not deemed to be a key source of
estimation uncertainty. The impact of climate change will continue to be monitored over the coming years.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:
•
Retirement benefit obligation
The Group operates a defined benefit pension scheme, The Porvair plc Pension and Death Benefit Plan (the “Plan”), covering a number of
employees in the UK. The pension scheme is financed through a separate trust fund and is closed to new entrants. The present value of the
obligations of this scheme is subject to financial assumptions, and management obtains external actuarial guidance on this. Sensitivities in the
principal assumptions on valuing the Plan’s defined benefit obligation at 30 November 2023 have been calculated and are given in note 20.
•
Provisions for project filtration systems
The Group holds warranty provisions in relation to certain project filtration contracts. Note 21 outlines management’s best estimate of the amount
of any potential loss arising from rectification and claims arising on those contracts. Progress on commercial discussions and the performance of
the filtration equipment installed, together with the passage of time, all help to inform the estimates and judgements taken at the year-end with
regards to the quantum and timing of economic outflows. The total warranty provision at 30 November 2023 of £3.6 million is not concentrated
in one balance. As an indication of sensitivity, if actual outcomes are 10% different in total to the estimates and assumptions made, this would
result in a charge or gain of £360,000 within the Consolidated income statement.
•
Estimation of LTSP share option charge
The long-term share plan share options (“LTSPs”) have vesting conditions, as outlined in the Remuneration report, which can result in the vesting
of between 0% to 100% of each LTSP grant. One element of the share-based payment charge calculation of these LTSPs relies on management’s
best estimate forecast of the performance of the Group. As an example, if the success rate of the unvested share options were increased/
decreased by 10% then the share option charge would be approximately £50,000 higher/lower.
Revenue
The Group’s revenue streams are from the sale of goods and the provision of services to customers served by the Aerospace & Industrial,
Laboratory and Metal Melt Quality divisions. Revenue is recognised in a manner that depicts the transfer of promised products or services to the
customer for an amount that reflects the consideration expected in exchange for those goods or services.
A customer contract is deemed to exist when the Group is in possession of documentation to provide products or services on agreed terms and
conditions which can be invoiced against and paid for by the customer.
Sales of goods and services are distinct and accounted for as separate performance obligations if they are separately identifiable in the contract
and the customer can benefit from them, either on their own or together with other readily available resources.
Where multiple distinct performance obligations are identified within a contract, the total transaction price is allocated to each in proportion to
their relative stand-alone selling prices. Stand-alone selling prices are typically estimated based on expected costs plus contract margin.
For each distinct performance obligation, the Group determines whether they are satisfied over time or at a point in time. Revenue is recognised
over time if any of the following apply:
•
The Group is creating a bespoke item which does not have an alternative use and the entity has an enforceable right to payment for work
completed to date, including a reasonable profit margin.
•
The customer controls the asset being created or enhanced during the manufacturing process.
•
The customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs.
Judgement can be involved when determining performance obligations; whether or not a product is bespoke; and whether an enforceable right
to payment for work completed to date includes a reasonable profit margin.
For certain engineering contracts within the Aerospace & Industrial division, multiple distinct performance obligations may exist whereby
allocated revenue is recognised over time for each on an input basis as the work progresses, with progress measured by reference to actual costs
incurred as a proportion of total expected costs.
Revenue is also recognised over time for certain service and maintenance contracts within the Laboratory division. For these contracts, the
performance obligations are deemed to be satisfied evenly over the contractual term and revenue is recognised evenly over time as the client
simultaneously receives and consumes the benefits provided by the Group.
For the majority of goods sold by the Aerospace & Industrial, Laboratory and Metal Melt Quality divisions, revenue does not the meet the criteria
to be recognised over time and is instead recognised at the point in time when the Group has satisfied its performance obligations and control of
the goods has passed to the customer, which is typically on delivery or collection.
Revenue recognised includes estimates for any variable consideration and excludes sales taxes. Revenue is not, however, reduced for bad debts
nor any performance related warranties, both of which are accounted for as cost provisions.
1
Summary of significant accounting policies
continued
95
Porvair plc Annual Report & Accounts 2023
Financial statements
Leasing
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost,
being the initial amount of the lease liability adjusted for any lease payments made at or before commencement date. Lease liabilities are recorded
at the present value of lease payments. Leases are discounted at the incremental borrowing rate, being the rate that the relevant entity would have
to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are depreciated on a straight-line basis over the lease term, or useful life if shorter. Lease payments relating to low value assets or
to short-term leases are recognised as an expense on a straight-line basis over the lease term. Short-term leases are those with 12 months or less
duration. Low value assets are those below a cost of £4,000.
Foreign currencies
The consolidated financial statements are presented in UK Pounds Sterling, which is the Company’s functional and presentation currency.
The Group determines the functional currency of each entity based on the primary economic environment in which the entity operates and
items included in the financial statements of each entity are measured using that functional currency.
On consolidation, the assets and liabilities of the Group’s overseas operations, borrowings and other currency instruments are translated at
exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period unless
exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as other comprehensive income and transferred to the
Group’s translation reserve. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of
the foreign entity and translated at the closing rate.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or
valuation where items are re-measured. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
income statement.
Borrowing costs
All borrowing costs are recognised in the income statement in the period in which they are incurred, with the exception of borrowing costs
incurred on the arrangement of new facilities which are capitalised and subsequently recognised in the income statement over the period of the
borrowings, using the effective interest rate method.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. For defined benefit retirement schemes,
the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance
sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised in the consolidated statement
of comprehensive income. The retirement benefit obligation in the balance sheet represents the present value of the defined benefit obligation as
adjusted for unrecognised past service cost and as reduced by the fair value of scheme assets.
The tax expense represents the sum of the current tax and deferred tax. Current tax is based on taxable profit for the period. Taxable profit differs
from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other
periods and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates which
have been enacted. Tax provisions are based on management’s interpretation of country specific tax laws and the likelihood of any tax risks.
the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax
liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial recognition (other than a business combination) of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all, or part, of the
asset to be recovered. Deferred tax is calculated at the tax rates which have been enacted or substantively enacted by the balance sheet date and
are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is recognised in the income statement, except
when it relates to items recognised directly in other comprehensive income or directly in equity. In this case, the deferred tax is also recognised in
other comprehensive income or directly in equity, respectively. Deferred tax assets and liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a net basis.
1
Summary of significant accounting policies
continued
96
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
Property, plant and equipment
Property, plant and equipment for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance
sheet at their cost less any subsequent accumulated depreciation and impairment losses. Cost comprises the purchase price plus costs directly
incurred in bringing the assets into use.
Depreciation for these assets commences when the assets are ready for their intended use. Depreciation is charged so as to write assets down to
their residual value, other than assets under construction, over their estimated useful lives, using the straight line method, on the following bases:
Buildings
2.0 – 2.5%
Plant, machinery and equipment
7.0 – 33.0%
Freehold land is not depreciated.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying
amount of the assets and is recognised in the income statement. The assets’ residual values and useful lives are reviewed, and adjusted if
appropriate, at the end of each reporting period.
Goodwill
Goodwill arising on consolidation represents the excess of the fair value of consideration over the Group’s interest in the fair value of identifiable
assets and liabilities and contingent liabilities of a subsidiary at the date of acquisition. The cost of acquisition includes the fair value of deferred
and contingent consideration. Goodwill is recognised as an asset at cost less accumulated impairment losses and is reviewed for impairment
annually, or more frequently if events or changes in circumstances indicate potential impairment. Any impairment is recognised immediately in
the income statement and is not subsequently reversed. For the purpose of impairment testing, goodwill acquired in a business combination is
allocated to each of the cash generating units that is expected to benefit from the synergies of the combination. On disposal of a subsidiary, the
attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Acquisition-related intangible assets
Intangible assets acquired in a business combination that are either separable or arising from contractual rights are recognised at fair value at the
date of acquisition. Such intangible assets include customer contracts and relationships, together with patents, trademarks and know-how. The
fair value of acquisition-related intangible assets is determined by use of the appropriate valuation techniques and is subsequently amortised on
a straight line basis over the estimated useful lives, which range between 3 – 15 years.
Internally generated intangible assets – research and development expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally generated intangible asset arising
from the Group’s product development expenditure is recognised only if all of the following criteria are demonstrable:
•
The technical feasibility of completing the intangible asset so that it will be available for use or sale;
•
The intention to complete the intangible asset and use or sell it;
•
The ability to use the intangible asset or to sell it;
•
The way in which the intangible asset will generate probable future economic benefits;
•
The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
•
The ability to measure reliably the expenditure attributable to the intangible asset during its development.
Internally generated intangible assets are stated at cost and held at cost less accumulated amortisation and impairment losses, and are recognised
as an expense on a straight line basis over their estimated useful lives. Useful life is determined with reference to estimated product life in the
industry in which the expenditure has been incurred. Useful life of the Group’s development expenditure is currently between 3 and 10 years.
Amortisation of development expenditure commences when development has been completed to management satisfaction and the related
project is ready for its intended use. Where no internally generated intangible asset can be recognised, development expenditure is recognised
as an expense in the period in which it is incurred.
Soſtware
Software costs are classified as intangible fixed assets and measured initially at purchase cost. Amortisation is charged on a straight line basis over
their estimated useful lives of 3 – 5 years.
Impairment of property, plant and equipment, right-of-use assets and intangible assets
The Group reviews annually the carrying amounts of its property, plant and equipment, right-of-use assets and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss (if any). For the purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows (cash generating units). Recoverable amount is the higher of fair value less costs
to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows
have not been adjusted. If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying
amount of the asset or cash generating unit is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
When an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit (other than goodwill) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset or cash generating unit in prior years. A reversal of an impairment loss is
recognised in the income statement immediately.
1 Summary of significant accounting policies
continued
97
Porvair plc Annual Report & Accounts 2023
Financial statements
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and
those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is assigned using either the
first-in-first out or weighted average cost formula. Net realisable value represents the estimated selling price less all estimated costs of completion
and costs to be incurred in marketing, selling and distribution. Where necessary, provision is made for obsolete, slow moving and defective
inventories.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions
of the instrument.
(a)
Trade and other receivables
Trade and other receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost, less provision for
impairment. Trade receivables are assessed for impairment using the IFRS 9 –
Financial Instruments
simplified approach to the expected credit
loss (ECL) model, which applies a default rate that increases as the unpaid receivable ages. The impairment assessment considers both past
experience and future expectations of credit losses. In order to assess the ECL over the lifetime of the asset, a provision matrix is used to inform a
group-wide default rate, which is adjusted for current and expected future economic conditions. Trade receivables are provided in full and
subsequently written off when there is no reasonable expectation of recovery. Indicators that there may be no reasonable expectation of recovery
include evidence that the customer has entered administration or liquidation proceedings, or the persistent failure of a customer to enter into or
adhere to a repayment plan.
(b) Cash and cash equivalents
In the consolidated cash flow statement, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly
liquid investments with original maturities of three months or less and bank overdrafts.
(c)
Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the effective
interest method and are added to the carrying amount of the instrument, to the extent that they are not settled in the period in which they arise.
(d) Trade and other payables
Trade and other payables are not interest bearing and are initially recognised at fair value and subsequently held at amortised cost.
(e) Derivative financial instruments and hedge accounting
The Group holds derivative financial instruments in the form of forward foreign exchange contracts to hedge its foreign currency exposure.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequent changes in the fair value of foreign
currency derivatives are recognised immediately in the consolidated income statement. The Group does not currently apply hedge accounting.
The Group recognises all forward foreign exchange contracts on the balance sheet at fair value using external market data.
Equity instruments
Ordinary shares are classified as equity. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue
costs. Where any Group company purchases the Company’s equity share capital (“treasury shares”), the consideration paid, including any directly
attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company’s equity holders until the shares are
cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable
incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.
Provisions
A provision is recognised when there is a present (legal or constructive) obligation as a result of a past event, and it is probable that the Group will
be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions have been made for future
dilapidation costs on leased property and for warranties on shipped goods sales, and warranty costs on relevant sale contracts. These provisions
are the Directors’ best estimates as the actual costs and timing of future cash flows are dependent on future events. Any difference between
expectations and the actual future liability will be accounted for in the period when such determination is made. Where the impact of discounting
is material, the Group discounts at its weighted average cost of capital, unless some other rate is more appropriate in the circumstances.
Share-based payments
The Group issues equity settled, share-based payments to certain employees. Equity settled, share-based payments are measured at fair value at
the date of grant. The fair value determined at the grant date of the equity settled, share-based payments is expensed on a straight line basis over
the vesting period, based on the Group’s estimate of shares that will eventually vest. The corresponding entry is recognised in equity. Non-market
performance and service conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet
date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original
estimates, if any, in the income statement, with a corresponding adjustment to equity.
Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best
estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Adjusting items
When items of income or expense are material and they are relevant to an understanding of the Group’s financial performance, they are disclosed
separately within the financial statements. Such adjusting items include material costs or reversals arising from acquisitions or disposals of
businesses, including acquisition costs, creation or reversal of provisions related to changes in estimates for contingent consideration on
acquisition, amortisation of acquired intangible assets, and other one-off items that may arise.
1 Summary of significant accounting policies
continued
98
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
Segment reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the same entity). An operating segment’s operating results
are regularly reviewed by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and
assess its performance, and for which discrete financial information is available. Operating segments are aggregated into reporting segments
where they share similar economic characteristics as a result of the nature of the products sold or the services provided, the production processes
used to manufacture the products, the type of customer for the products and services, and the methods used to distribute the products or
provide the services.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the
dividends are approved by the Company’s shareholders.
Cumulative translation reserve
The cumulative translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign
operations that are not integral to the operations of the Company itself. On disposal of a foreign operation, the cumulative translation reserve is
recycled and included within the profit or loss on disposal.
New standards and amendments
(a) Standards and amendments effective for the first time in the year ended 30 November 2023:
The following amendments to existing standards were effective for the first time for the financial year ended 30 November 2023:
•
Amendments to IFRS 3 –
Updating a Reference to the Conceptual Framework
•
Amendments to IAS 16 –
Property, Plant and Equipment: Proceeds before Intended Use
•
Amendments to IAS 37 –
Onerous Contracts – Cost of Fulfilling a Contract
These amendments have not had a material effect on the Group’s financial statements.
(b) Standards and amendments effective for the first time in the year ending 30 November 2024 which have not been
early adopted:
The following new standards and amendments to existing standards are effective for the first time for the year ending 30 November 2024:
•
IFRS 17 –
Insurance Contracts
•
Amendments to IFRS 17 –
Initial Application of IFRS 17 & FRS 9 – Comparative Information
•
Amendments to IAS 1 and IFRS Practice Statement 2 –
Disclosure of Accounting Policies
•
Amendments to IAS 8 –
Definition of Accounting Estimates
•
Amendments to IAS 12 –
Deferred Tax related to Assets and Liabilities arising from a Single Transaction
•
Amendments to IAS 12 –
International Tax Reform – Pillar Two Model Rules
The Group does not anticipate that the adoption of these standards and amendments will have a material effect on its financial statements.
(c) Standards and amendments effective in future subject to UK and EU endorsement:
•
IFRS S1 –
General requirements for disclosure of sustainability-related financial information
•
IFRS S2 –
Climate-related disclosures
The Group does not anticipate that the adoption of these standards and amendments will have a material effect on its financial statements.
1 Summary of significant accounting policies
continued
99
Porvair plc Annual Report & Accounts 2023
Financial statements
2
Alternative performance measures
Alternative performance measures are used by the Directors and management to monitor business performance internally and exclude certain
cash and non-cash items which they believe are not reflective of the normal course of business of the Group. The Directors believe that disclosing
such non-IFRS measures enables a reader to isolate and evaluate the impact of such items on results and allows for a fuller understanding of
performance from year to year. Alternative performance measures may not be directly comparable with other similarly titled measures used by
other companies.
Alternative revenue measures
2023
£’000
2022
£’000
Growth
%
Aerospace & Industrial
Revenue at constant currency
64,418
61,864
4
Exchange
3,218
2,861
Revenue as reported
67,636
64,725
4
Laboratory
Underlying revenue
53,574
59,376
(10)
Acquisition
2,799
–
Revenue at constant currency
56,373
59,376
(5)
Exchange
4,013
3,308
Revenue as reported
60,386
62,684
(4)
Metal Melt Quality
Revenue at constant currency
42,329
40,236
5
Exchange
5,662
4,930
Revenue as reported
47,991
45,166
6
Group
Underlying revenue
160,321
161,476
(1)
Acquisition
2,799
–
Revenue at constant currency
163,120
161,476
1
Exchange
12,893
11,099
Revenue as reported
176,013
172,575
2
Revenue at constant currency is derived from translating overseas subsidiaries results at budgeted fixed exchange rates. In 2023 and 2022, the
rates used were US$1.40:£1 and €1.20:£1, compared with reported rates of US$1.24:£1 (2022: US$1.25:£1) and €1.15:£1 (2022: €1.18:£1).
Underlying revenue is revenue at constant currency adjusted for the impact of acquisitions made in the current and prior year.
The acquisition line relates to the revenue in relation to the acquisition of Ratiolab, which was acquired in July 2023.
Alternative profit measures
A reconciliation of the Group’s adjusted performance measures to the reported IFRS measures is presented below:
2023
2022
Adjusted
£’000
Adjustments
£’000
Reported
£’000
Adjusted
£’000
Adjustments
£’000
Reported
£’000
Operating profit
22,571
(1,331)
21,240
20,498
(688)
19,810
Finance income
126
–
126
–
–
–
Finance costs
(1,276)
–
(1,276)
(1,072)
–
(1,072)
Profit before tax
21,421
(1,331)
20,090
19,426
(688)
18,738
Income tax expense
(4,324)
204
(4,120)
(4,169)
145
(4,024)
Profit for the year
17,097
(1,127)
15,970
15,257
(543)
14,714
100
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
An analysis of adjusting items is given below:
2023
£’000
2022
£’000
Affecting operating profit:
Amortisation of acquired intangible assets
(872)
(688)
Other acquisition-related costs
(459)
–
(1,331)
(688)
Affecting tax:
Tax effect of adjustments to operating profit
204
145
Total adjusting items
(1,127)
(543)
Adjusted operating profit excludes:
•
the amortisation of intangible assets arising on acquisition of businesses of £0.9 million (2022: £0.7 million); and
•
other acquisition-related costs of £0.4 million (2022: £nil) incurred in relation to the acquisition of certain business and assets from HRW;
the 100% share capital of Ratiolab; and the 100% share capital of EFC, which completed post year-end on 4 December 2023 (see notes 25
and 26).
Return on capital employed
The Group uses two return measures to assess the return it makes on its investments:
•
return on capital employed of 15% (2022: 15%) is the tax adjusted operating profit as a percentage of the average capital employed. Capital
employed is the average of the opening and closing Group net assets less the average of the opening and closing net cash (excluding lease
liabilities); and
•
return on operating capital employed of 34% (2022: 36%) is calculated on the same basis except that the capital employed is adjusted to
remove the average of the opening and closing goodwill and the opening and closing net of tax retirement benefit obligations to give a
measure of the operating capital.
3 Segment information
The chief operating decision maker has been identified as the Board of Directors. The Board of Directors has instructed the Group’s internal
reporting to be based around differences in products and services, in order to assess performance and allocate resources. The key profit measure
used to assess the performance of each reportable segment is adjusted operating profit/(loss). Management has determined the operating
segments based on this reporting.
At 30 November 2023, the Group is organised on a worldwide basis into three operating segments:
(1) Aerospace & Industrial – principally serving the aviation, and energy and industrial markets;
(2) Laboratory – principally serving the bioscience and environmental laboratory instrument and consumables market; and
(3) Metal Melt Quality – principally serving the global aluminium, North American Free Trade Agreement (“NAFTA”) iron foundry and
superalloys markets.
Other Group operations’ costs, assets and liabilities are included in the “Central” division. Central costs mainly comprise Group corporate costs,
including new business development costs, some research and development costs and general financial costs. Central assets and liabilities mainly
comprise Group retirement benefit obligations, tax assets and liabilities, cash and borrowings.
2 Alternative performance measures
continued
101
Porvair plc Annual Report & Accounts 2023
Financial statements
The segment results for the year ended 30 November 2023 are as follows:
30 November 2023
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Total segment revenue
67,661
62,106
47,991
–
177,758
Inter-segment revenue
(25)
(1,720)
–
–
(1,745)
Revenue
67,636
60,386
47,991
–
176,013
Adjusted operating profit/(loss)
9,780
9,215
6,547
(2,971)
22,571
Adjustments:
Amortisation of acquired intangible assets
2
(446)
(426)
–
–
(872)
Other acquisition-related costs
2
(23)
–
–
(436)
(459)
Operating profit/(loss)
9,311
8,789
6,547
(3,407)
21,240
Finance income
–
–
–
126
126
Finance costs
6
–
–
–
(1,276)
(1,276)
Profit/(loss) before tax
9,311
8,789
6,547
(4,557)
20,090
The segment results for the year ended 30 November 2022 are as follows:
30 November 2022
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Total segment revenue
64,864
64,453
45,166
–
174,483
Inter-segment revenue
(139)
(1,769)
–
–
(1,908)
Revenue
64,725
62,684
45,166
–
172,575
Adjusted operating profit/(loss)
7,200
10,321
5,701
(2,724)
20,498
Adjustments:
Amortisation of acquired intangible assets
2
(382)
(306)
–
–
(688)
Operating profit/(loss)
6,818
10,015
5,701
(2,724)
19,810
Finance costs
6
–
–
–
(1,072)
(1,072)
Profit/(loss) before tax
6,818
10,015
5,701
(3,796)
18,738
3 Segment information
continued
102
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
Other segment items included in the income statement are as follows:
30 November 2023
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Depreciation – property, plant and equipment
10
1,500
1,293
688
9
3,490
Impairment – property, plant and equipment
10
–
38
–
–
38
Amortisation – intangible assets
12
631
433
29
–
1,093
Depreciation – right-of-use assets
11
1,170
775
240
47
2,232
3,301
2,539
957
56
6,853
30 November 2022
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Depreciation – property, plant and equipment
10
1,320
1,029
543
7
2,899
Impairment – property, plant and equipment
10
186
–
–
–
186
Amortisation – intangible assets
12
465
452
29
–
946
Depreciation – right-of-use assets
11
1,245
659
262
46
2,212
Impairment – right-of-use assets
11
14
–
–
–
14
3,230
2,140
834
53
6,257
The segment assets and liabilities at 30 November 2023 are as follows:
30 November 2023
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Segmental assets
67,456
74,835
34,470
2,470
179,231
Cash and cash equivalents
16
–
–
–
16,839
16,839
Total assets
67,456
74,835
34,470
19,309
196,070
Segmental liabilities
(18,709)
(13,533)
(6,301)
(6,589)
(45,132)
Retirement benefit obligations
20
–
–
–
(7,713)
(7,713)
Bank overdraſts
16
–
–
–
(2,787)
(2,787)
Total liabilities
(18,709)
(13,533)
(6,301)
(17,089)
(55,632)
The segment assets and liabilities at 30 November 2022 are as follows:
30 November 2022
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Segmental assets
68,033
63,324
36,063
1,979
169,399
Cash and cash equivalents
16
–
–
–
18,297
18,297
Total assets
68,033
63,324
36,063
20,276
187,696
Segmental liabilities
(21,640)
(13,168)
(6,893)
(5,111)
(46,812)
Retirement benefit obligations
20
–
–
–
(9,816)
(9,816)
Total liabilities
(21,640)
(13,168)
(6,893)
(14,927)
(56,628)
3 Segment information
continued
103
Porvair plc Annual Report & Accounts 2023
Financial statements
Geographical analysis
2023
2022
Revenue
By
destination
£’000
By
origin
£’000
By
destination
£’000
By
origin
£’000
United Kingdom
18,588
48,291
17,715
50,018
Continental Europe
36,707
28,863
35,898
21,695
United States of America
80,479
93,609
80,537
96,370
Other NAFTA
4,298
–
3,592
–
South America
2,567
–
2,409
–
Asia
31,925
5,250
30,785
4,492
Africa
1,449
–
1,639
–
176,013
176,013
172,575
172,575
Total revenue comprises revenue recognised at a point in time of £173.5 million (2022: £170.3 million), revenue recognised over time of
£2.4 million (2022: £2.2 million) and royalties of £0.1 million (2022: £0.1 million). No customer accounts for greater than 10% of revenue in
2023 or 2022.
Non-current assets
2023
£’000
2022
£’000
United Kingdom
35,565
33,411
Continental Europe
27,381
15,609
Americas
60,405
63,287
Asia
63
48
Unallocated deferred tax asset
401
1,046
123,815
113,401
Capital expenditure, including right-of-use assets
2023
£’000
2022
£’000
United Kingdom
3,484
2,419
Continental Europe
1,831
533
Americas
2,532
3,102
Asia
64
66
7,911
6,120
4 Profit before income tax
The following items have been included in arriving at profit before income tax:
Note
2023
£’000
2022
£’000
Staff costs
5
59,438
57,799
Inventories – cost of inventories recognised as an expense (included in cost of sales)
63,478
61,332
Net realised foreign exchange (gains)/losses
(291)
417
Depreciation on property, plant and equipment – owned
10
3,490
2,899
Depreciation on right-of-use assets
11
2,232
2,212
Impairment charge on property, plant and equipment – owned
10
38
186
Amortisation of intangible assets
12
1,093
946
(Gain)/loss on disposal of assets
(2)
14
Lease rentals payable:
– Plant and machinery
54
38
– Property
13
50
Repairs and maintenance on property, plant and equipment
2,683
2,432
Trade receivables impairment
(3)
278
Research and development expenditure
3,969
3,460
3 Segment information
continued
104
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
The total remuneration of the Group’s Auditor, RSM UK Audit LLP, for services provided to the Group is analysed below:
2023
£’000
2022
£’000
Fees payable to the Company’s Auditor and its associates for audit of parent company
and consolidated financial statements
170
100
Interim review
35
25
Fees payable to the Company’s Auditor and its associates for other services:
– the audit of Company’s subsidiaries
273
180
478
305
5 Employee benefit expense
The average monthly number of staff, including Executive Directors, employed during the year is detailed below:
2023
Average
number
2022
Average
number
Number
Aerospace & Industrial
395
425
Laboratory
419
354
Metal Melt Quality
187
181
Central
8
8
1,009
968
2023
£’000
2022
£’000
Staff costs
Wages and salaries
47,290
46,483
Social security costs
7,769
7,329
Other pension costs
3,331
2,930
Share-based payments
1,048
1,057
59,438
57,799
Detailed disclosures of Directors’ emoluments and interests in share options are shown in the Remuneration Report on pages 65 to 82.
The key management comprise the Directors of Porvair plc and their remuneration is disclosed in note 30.
6 Finance costs
Note
2023
£’000
2022
£’000
Interest payable on bank loans and overdraſts
453
376
Interest payable on lease liabilities
11
368
349
Unwinding of discount on provisions and contingent consideration
90
166
Pension scheme finance expense
20
365
181
1,276
1,072
4 Profit before income tax
continued
105
Porvair plc Annual Report & Accounts 2023
Financial statements
7 Income tax expense
Note
2023
£’000
2022
£’000
Current tax
UK Corporation tax
794
955
Adjustment in respect of prior periods – UK
(173)
(277)
Overseas tax
2,979
2,623
Adjustment in respect of prior periods – overseas
180
86
3,780
3,387
Deferred tax
Origination and reversal of temporary differences – UK
433
217
Origination and reversal of temporary differences – overseas
(129)
(21)
Adjustment in respect of prior periods – UK
121
225
Adjustment in respect of prior periods – overseas
(2)
(140)
Effect of change in deferred tax rates
(83)
356
19
340
637
4,120
4,024
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the UK tax rate applicable to profits of the
consolidated companies as follows:
2023
£’000
2022
£’000
Profit before tax
20,090
18,738
Tax at the UK Corporation tax rate of 23% (2022: 19%)
4,621
3,560
Current tax adjustments in respect of prior periods
7
(191)
Deferred tax adjustments in respect of prior periods
119
85
Deferred tax on share-based payments within the income statement
10
45
Tax effect of income not subject to tax
(488)
(283)
Tax effect of expenses not deductible in determining taxable profit
181
209
Effect of change in deferred tax rates
(83)
356
Effect of different tax rates of subsidiaries operating in other jurisdictions
(247)
243
Tax charge
4,120
4,024
In addition to the amount charged to the income statement, the following tax was (credited)/charged direct to equity/comprehensive income:
2023
£’000
2022
£’000
Deferred tax on share-based payments (direct to equity)
(22)
26
Deferred tax on actuarial gains on the pension fund (direct to comprehensive income)
63
397
Current tax on share-based payments (direct to equity)
2
(9)
43
414
The Group earns its profits in the UK and overseas. The Finance Act 2021, substantively enacted in the year to 30 November 2021, announced
that the UK corporation tax rate will increase to 25% with effect from 1 April 2023. This has resulted in a blended rate of 23% being applied on the
profits in 2023 (2022: 19%). Deferred taxes in the UK have been measured at the corporation tax rate expected to apply to the reversal of the
timing difference.
The current tax provision includes £1.1 million (2022: £1.1 million) for uncertainties relating to the interpretation of tax legislation in the Group’s
operating territories.
106
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
8 Earnings per share (EPS)
2023
2022
As reported
Earnings
£’000
Weighted
average
number of
shares
Per share
Pence
Earnings
£’000
Weighted
average
number of
shares
Per share
Pence
Profit for the year –
attributable to owners of the parent
15,970
14,714
Shares in issue
46,351,723
46,211,979
Shares owned by the Employee Benefit Trust
(439,447)
(319,288)
Basic EPS
15,970
45,912,276
34.8
14,714
45,892,691
32.1
Dilutive share options outstanding
–
26,112
–
–
18,598
(0.1)
Diluted EPS
15,970
45,938,388
34.8
14,714
45,911,289
32.0
In addition to the above, the Group also calculates an EPS based on adjusted profit as the Board believes this to be a better measure to judge the
progress of the Group, as discussed in note 2.
The following table reconciles the Group’s profit to adjusted profit used in the numerator in calculating adjusted EPS:
2023
2022
Adjusted
Note
Earnings
£’000
Weighted
average
number of
shares
Per share
Pence
Earnings
£’000
Weighted
average
number of
shares
Per share
Pence
Profit for the year –
attributable to owners of the parent
15,970
14,714
Adjusting items
2
1,127
543
Adjusted profit –
attributable to owners of the parent
17,097
15,257
Adjusted Basic EPS
17,097
45,912,276
37.2
15,257
45,892,691
33.2
Adjusted Diluted EPS
17,097
45,938,388
37.2
15,257
45,911,289
33.2
9 Dividends per share
2023
2022
Per share
Pence
£’000
Per share
Pence
£’000
Final dividend paid – in respect of prior year
3.8
1,745
3.5
1,606
Interim dividend paid – in respect of current year
2.0
919
1.9
872
5.8
2,664
5.4
2,478
The Directors recommend the payment of a final dividend of 4.0 pence per share (2022: 3.8 pence per share) to be paid on 5 June 2024 to
shareholders on the register on 3 May 2024; the ex-dividend date is 2 May 2024. This makes a total dividend for the year of 6.0 pence per share
(2022: 5.7 pence per share).
107
Porvair plc Annual Report & Accounts 2023
Financial statements
10 Property, plant and equipment
Land and
buildings
£’000
Assets in
course of
construction
£’000
Plant,
machinery and
equipment
£’000
Total
£’000
Cost
At 1 December 2021
13,088
699
43,778
57,565
Reclassification
14
(1,307)
1,293
–
Additions
17
3,034
1,775
4,826
Disposals
–
–
(1,666)
(1,666)
Exchange
901
91
2,271
3,263
At 30 November 2022
14,020
2,517
47,451
63,988
Accumulated depreciation
At 1 December 2021
(4,320)
–
(32,010)
(36,330)
Charge for year
(383)
–
(2,516)
(2,899)
Impairment charge
–
–
(186)
(186)
Disposals
–
–
1,649
1,649
Exchange
(300)
–
(1,611)
(1,911)
At 30 November 2022
(5,003)
–
(34,674)
(39,677)
Net book value at 30 November 2022
9,017
2,517
12,777
24,311
Land and
buildings
£’000
Assets in
course of
construction
£’000
Plant,
machinery and
equipment
£’000
Total
£’000
Cost
At 1 December 2022
14,020
2,517
47,451
63,988
Reclassification
76
(4,139)
4,063
–
Additions
104
2,263
2,335
4,702
Acquisitions
1,857
316
1,585
3,758
Disposals
(1)
–
(1,419)
(1,420)
Exchange
(568)
(74)
(1,578)
(2,220)
At 30 November 2023
15,488
883
52,437
68,808
Accumulated depreciation
At 1 December 2022
(5,003)
–
(34,674)
(39,677)
Charge for year
(443)
–
(3,047)
(3,490)
Impairment charge
–
–
(38)
(38)
Disposals
1
–
1,329
1,330
Exchange
216
–
1,180
1,396
At 30 November 2023
(5,229)
–
(35,250)
(40,479)
Net book value at 30 November 2023
10,259
883
17,187
28,329
The impairment charge disclosed above relates to the decommissioning of machinery within the Laboratory division, which was no longer in use.
£38,000 for impairment was charged to cost of sales in the Consolidated income statement in the year.
108
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
11 Leases – Right-of-use assets and lease liabilities
Right-of-use assets
The movement in right-of-use assets is set out below:
Land and
buildings
£’000
Plant,
machinery and
equipment
£’000
Total
£’000
Cost
At 1 December 2021
14,437
797
15,234
New leases
1,151
99
1,250
Exit from leases
(657)
(95)
(752)
Reclassifications
(1)
1
–
Exchange
555
27
582
At 30 November 2022
15,485
829
16,314
Accumulated depreciation
At 1 December 2021
(3,896)
(324)
(4,220)
Charge for year
(1,967)
(245)
(2,212)
Impairment charge
–
(14)
(14)
Exit from leases
419
43
462
Exchange
(165)
(21)
(186)
At 30 November 2022
(5,609)
(561)
(6,170)
Net book value at 30 November 2022
9,876
268
10,144
Land and
buildings
£’000
Plant,
machinery and
equipment
£’000
Total
£’000
Cost
At 1 December 2022
15,485
829
16,314
New leases
2,753
349
3,102
Acquisitions
1,827
31
1,858
Exit from leases
(1,381)
(222)
(1,603)
Exchange
(340)
(17)
(357)
At 30 November 2023
18,344
970
19,314
Accumulated depreciation
At 1 December 2022
(5,609)
(561)
(6,170)
Charge for year
(2,060)
(172)
(2,232)
Exit from leases
882
204
1,086
Exchange
124
14
138
At 30 November 2023
(6,663)
(515)
(7,178)
Net book value at 30 November 2023
11,681
455
12,136
109
Porvair plc Annual Report & Accounts 2023
Financial statements
Lease liabilities
The movement in lease liabilities is set out below:
2023
£’000
2022
£’000
At 1 December
(11,472)
(12,231)
New leases
(3,102)
(1,250)
Acquisitions
(1,858)
–
Exit from leases
609
290
Lease repayments
2,551
2,503
Interest on lease liabilities
(368)
(349)
Exchange
241
(435)
Net book value at 30 November
(13,399)
(11,472)
Analysed as:
2023
£’000
2022
£’000
Repayable within one year
(2,057)
(2,156)
Repayable aſter one year
(11,342)
(9,316)
(13,399)
(11,472)
Lease liabilities mature as follows:
Minimum lease liabilities falling due
2023
£’000
2022
£’000
Within one year – land and buildings
(2,295)
(2,303)
Within one year – property, plant and equipment
(152)
(164)
Total within one year
(2,447)
(2,467)
Between one and five years – land and buildings
(7,159)
(5,637)
Between one and five years – property, plant and equipment
(354)
(140)
Total between one and five years
(7,513)
(5,777)
Greater than five years – land and buildings
(5,098)
(4,502)
Greater than five years – property, plant and equipment
–
–
Total greater than five years
(5,098)
(4,502)
Total commitment
(15,058)
(12,746)
Less: finance charges included above
1,659
1,274
Net present value of lease liabilities
(13,399)
(11,472)
The total cash outflow for finance and operating leases in the year amounts to £2.7 million (2022: £2.6 million).
The Group enters into leases for offices, industrial units, and machinery. The remaining lease terms range from a few months to 11 years (2022:
few months to 12 years). Many of the leases have break options and/or extension options to provide operational flexibility. Management assesses
the lease term at inception based on the facts and circumstances applicable to each asset, including the period over which the investment
appraisal was initially considered.
The main leases entered into during the year were for premises within the UK and the Netherlands both with 10 year terms.
11 Leases – Right-of-use assets and lease liabilities
continued
110
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
12 Goodwill and other intangible assets
Goodwill
£’000
Development
expenditure
capitalised
£’000
Soſtware
capitalised
£’000
Trademarks,
know–how
and other
intangibles
£’000
Total
£’000
Net book amount at 30 November 2021
67,846
33
617
5,607
74,103
Additions
–
–
61
–
61
Amortisation charges
–
(35)
(209)
(702)
(946)
Exchange
4,486
4
29
163
4,682
Net book amount at 30 November 2022
72,332
2
498
5,068
77,900
At 30 November 2022
Cost
91,050
927
1,848
9,211
103,036
Accumulated amortisation and impairment
(18,718)
(925)
(1,350)
(4,143)
(25,136)
Net book amount
72,332
2
498
5,068
77,900
Net book amount at 30 November 2022
72,332
2
498
5,068
77,900
Additions
–
–
107
–
107
Acquisitions
5,425
–
43
3,240
8,708
Amortisation charges
–
(1)
(196)
(896)
(1,093)
Exchange
(2,589)
(1)
(6)
(77)
(2,673)
Net book amount at 30 November 2023
75,168
–
446
7,335
82,949
At 30 November 2023
Cost
93,841
908
1,899
12,207
108,855
Accumulated amortisation and impairment
(18,673)
(908)
(1,453)
(4,872)
(25,906)
Net book amount
75,168
–
446
7,335
82,949
Internally generated intangible assets arising from the Group’s product development are recognised only if all conditions are met as described in
the Summary of significant accounting policies (note 1).
Amortisation of £1.1 million (2022: £0.9 million) is included in ‘cost of sales’ in the income statement.
Intangible assets are comprised of development expenditure, software and trademarks, know-how and other intangibles. Within these balances
individually material balances relate to:
•
Customer list of Keystone – £0.9 million (2022: £1.2 million) – with a remaining amortisation period of 4 years.
•
Customer list of the Royal Dahlman Group – £0.8 million (2022: £0.8 million) – with a remaining amortisation period of 10 years.
•
Customer relationships of Kbiosystems – £1.6 million (2022: £1.8 million) – with a remaining amortisation period of 7 years.
•
Customer relationships of Ratiolab – £2.1 million (2022: £nil) – with a remaining amortisation period of 15 years.
111
Porvair plc Annual Report & Accounts 2023
Financial statements
Impairment tests for goodwill
Goodwill is allocated to the Group’s cash generating units (CGUs).
A segment level summary of the goodwill allocation is presented below.
2023
2022
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Total
£’000
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Total
£’000
Net book amount of goodwill
21,166
34,626
19,376
75,168
21,624
30,077
20,631
72,332
The recoverable amount of the goodwill is based on value-in-use calculations. The calculations use cash flow projections based on financial
budgets approved by management covering a three-year period. Pre-tax cash flows beyond the three-year period are extrapolated using the
estimated growth rates stated below.
Key assumptions used for value-in-use calculations in 2023:
Aerospace & Industrial
Laboratory
Metal Melt
Quality
US
UK
Continental
Europe
US
UK
Continental
Europe
US
Budgeted gross margin
31%
27%
27%
30%
37%
37%
28%
Long-term growth rate
4.3%
3.5%
3.6%
4.3%
3.5%
2.9%
4.3%
Pre-tax discount rate
13.5%
15.1%
11.9%
11.7%
12.9%
10.2%
13.5%
Key assumptions used for value-in-use calculations in 2022:
Aerospace & Industrial
Laboratory
Metal Melt
Quality
US
UK
Continental
Europe
US
UK
Continental
Europe
US
Budgeted gross margin
31%
22%
24%
28%
37%
36%
23%
Long-term growth rate
3.9%
3.5%
3.4%
3.9%
3.5%
3.5%
3.9%
Pre-tax discount rate
11.9%
12.5%
10.2%
12.5%
13.3%
10.8%
11.9%
These assumptions have been used for the analysis of each operation within the operating segment. Management determined budgeted gross
margins based on past performance and its expectations for the development in its markets. The average long-term growth rates used are
consistent with past experience and market expectations. The discount rates used are pre-tax and reflect specific risks relating to the relevant
segments.
The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates, and expected changes to selling prices
and direct costs.
The Group has conducted a sensitivity analysis on the impairment test of each CGU’s carrying value by comparing to the CGU’s value in use. The
sensitivity analysis shows that the most sensitive CGU (to which goodwill with a carrying value of £3.1 million is allocated) is sensitive to a change
in the discount rate. With all other variables being equal, the headroom would be eliminated if the discount rate were to increase 2.6% to 15.5%.
Based on the results of the current year impairment review, no impairment charges have been recognised by the Group in the year ended 30
November 2023 (2022: £nil).
13 Derivative financial instruments
2023
2022
Assets
£’000
Liabilities
£’000
Assets
£’000
Liabilities
£’000
Forward foreign exchange contracts – current
250
–
554
(319)
The gain recognised in the income statement in the year for non-hedged derivatives amounted to £15,000 (2022: £255,000).
The notional principal amounts of the outstanding forward foreign exchange contracts at 30 November 2023 are US$10.0 million
(2022: US$13.0 million) and €nil (2022: €0.4 million).
12 Goodwill and other intangible assets
continued
112
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
14 Inventories
2023
£’000
2022
£’000
Raw materials
9,897
9,737
Work in progress
10,390
10,806
Finished goods
11,611
10,430
31,898
30,973
The Group has recognised a charge in the income statement of £0.8 million (2022: £0.9 million) for the write-down of its inventories during
the year ended 30 November 2023. The Group has utilised provisions of £0.2 million (2022: £0.4 million) during the year ended
30 November 2023.
15 Trade and other receivables
2023
£’000
2022
£’000
Current
Trade receivables
21,306
23,803
Less: provision for impairment
(1,443)
(1,444)
Trade receivables – net
19,863
22,359
Other debtors
1,263
773
Prepayments
2,142
1,339
23,268
24,471
There is no difference between the fair value of trade and other receivables and their carrying value.
Included within ‘Other debtors’ is VAT receivable of £0.7 million (2022: £0.6 million).
Credit risk in relation to trade receivables
The Group has a diverse customer base both geographically and in the number of industries in which it operates. There is credit risk associated
with a decline in a particular industry or geographic region. To offset this risk, the Group has implemented policies that require appropriate credit
checks to be performed on significant potential customers before sales are made. Customer orders are checked against pre-set criteria before
acceptance and credit control procedures are applied. Letters of credit and payments in advance are obtained from customers as appropriate.
Trade and other receivables are non-interest bearing and generally on terms between 30 to 90 days. The Group does not hold any collateral or
other credit enhancements over its trade receivables, nor does it have a legal right to offset against any amounts owed to the counterparty, so was
exposed to credit risk in respect of the net trade receivables balance of £19.9 million (2022: £22.4 million).
Trade receivables are assessed for impairment as described in note 1. On that basis, the loss allowance as at 30 November 2023 was determined
as follows for trade receivables:
2023
2022
Trade receivables (current):
Not yet due
£’000
Past due not
impaired
£’000
Impaired
£’000
Not yet due
£’000
Past due not
impaired
£’000
Impaired
£’000
Not yet due
16,449
–
–
18,469
–
–
0 – 30 days
–
2,605
–
–
3,264
–
31– 60 days
–
445
130
–
344
88
61– 90 days
–
320
231
–
108
88
91–180 days
–
44
95
–
174
271
> 180 days
–
–
987
–
–
997
Total
16,449
3,414
1,443
18,469
3,890
1,444
113
Porvair plc Annual Report & Accounts 2023
Financial statements
Movements in the Group provision for impairment of trade receivables are as follows:
2023
£’000
2022
£’000
At 1 December
1,444
1,113
Provision for receivables impairment
(3)
612
Acquisitions
49
–
Receivables written off during the year as uncollectable
–
(334)
Exchange
(47)
53
At 30 November
1,443
1,444
Foreign exchange risk in relation to trade receivables is disclosed in note 27.
16 Cash and cash equivalents
2023
£’000
2022
£’000
Cash at bank and in hand
16,839
18,297
Bank overdraſt
(2,787)
–
14,052
18,297
The credit risk associated with cash and cash equivalents is mitigated by holding funds with banks with high credit ratings from AA- to A as
assigned by international credit rating agencies.
Included within bank overdrafts is £2.8 million (2022: £nil) representing non-interest bearing balances on cash pooling arrangements in
the Group.
Cash and cash equivalents held in the UK is subject to a Composite Account System, which is a banking offset arrangement that allows the set-off
of overdraft balances with retained cash for interest calculation purposes.
Overdraft limits within the Composite Account System are £13 million gross, of which £2.8 million is utilised (2022: £nil). The Group held no
bank overdrafts, excluding balances on cash pooling arrangements.
The Group’s cash balances are denominated in the following currencies:
2023
£’000
2022
£’000
Pound Sterling
4,091
7,043
US dollar
5,304
8,156
Euro
4,124
2,508
Other
533
590
14,052
18,297
17 Trade and other payables
2023
£’000
2022
£’000
Amounts falling due within one year:
Trade payables
8,628
10,707
Taxation and social security
790
707
Other payables
1,390
2,451
Accruals and contract liabilities
13,019
14,016
23,827
27,881
Included within ‘Accruals and contract liabilities’ are contract liabilities of £3.3 million (2022: £3.1 million).
Included within ‘Other payables’ is contingent consideration of £nil (2022: £0.9 million) in relation to Kbiosystems. The remaining balance within
‘Other payables’ is primarily employee-related liabilities.
15 Trade and other receivables
continued
114
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
18 Borrowings
2023
£’000
2022
£’000
Secured multi-currency revolving credit facility
–
–
In May 2021, the Group agreed a €28 million (£24 million) four year secured revolving credit facility, with an option to extend by one year, plus a
€17 million (£15 million) accordion facility, with Barclays Bank plc and Citibank N.A., London Branch. 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. The Group also has a £2.5 million overdraft facility provided by
Barclays Bank plc. The multi-currency facility is secured by fixed and floating charges against certain items of the Group’s assets in the UK and
wider Europe.
At 30 November 2023, the Group had €27.8 million/£24.0 million (2022: €27.7 million/£23.9 million) of unused credit facility and an unutilised
net £2.5 million (2022: £2.5 million) overdraft facility.
19 Deferred tax
The movement of deferred tax assets and (liabilities) during the year is as follows:
Accelerated
capital
allowances
£’000
Other short
term timing
differences
£’000
Intangibles
£’000
Share-based
payments
£’000
Retirement
obligations
£’000
Total
£’000
At 1 December 2021
(4,015)
1,099
(841)
194
2,959
(604)
Credited/(charged) to income statement
382
208
(1,128)
138
(237)
(637)
Charged to equity
–
–
–
(26)
–
(26)
Charged to comprehensive income
–
–
–
–
(397)
(397)
Exchange
(114)
104
(91)
–
–
(101)
At 30 November 2022
(3,747)
1,411
(2,060)
306
2,325
(1,765)
Acquisitions
–
–
(883)
–
–
(883)
Credited/(charged) to income statement
(573)
363
47
191
(368)
(340)
Credited to equity
–
–
–
22
–
22
Charged to comprehensive income
–
–
–
–
(63)
(63)
Exchange
(180)
118
(91)
–
–
(153)
At 30 November 2023
(4,500)
1,892
(2,987)
519
1,894
(3,182)
The net deferred tax liability of £3.2 million (2022: £1.8 million) comprises £2.3 million deferred tax liabilities (2022: £2.4 million) of Group
entities based in the US, £1.3 million deferred tax liabilities (2022: £0.4 million) of Group entities based in Continental Europe, and £0.4 million
deferred tax assets (2022: £1.0 million) of Group entities based in the UK.
At the balance sheet date, the Group has unused tax losses of £6.6 million (2022: £6.8 million) available for offset against future profits. No
deferred tax asset has been recognised in respect of such losses (2022: £nil).
20 Retirement benefit obligations
2023
£’000
2022
£’000
Defined benefit plan
7,576
9,641
Additional defined benefit obligations
137
175
7,713
9,816
(a) Defined contribution schemes
For its US employees, the Group operates a defined contribution pension plan (“the Pension Plan”) covering all eligible full-time employees. The
Group contributes 3% of each participant’s base salary each year to the Pension Plan. In 2023, this amounted to £0.7 million (2022: £0.6 million).
In 2023, the Group also made payments of £0.7 million (2022: £0.6 million) to designated US 401k schemes on behalf of its employees. In the
UK, after the closure of the defined benefit plan to new members, the Group introduced a stakeholder plan to be offered to all new employees.
Total employer contributions in the UK paid to defined contribution schemes were £1.4 million (2022: £1.1 million).
(b) Defined benefit plan
The Group operates a defined benefit pension scheme, The Porvair plc Pension and Death Benefit Plan (the “Plan”), covering a number of
employees in the UK. The pension scheme is a final salary scheme and is financed through a separate trust fund administered by Trustees with an
independent Chairman. The Plan was closed to new entrants in October 2001. The defined benefit scheme exposes the Group to actuarial risks,
such as longevity risk, inflation risk, interest rate risk and market (investment) risk. The Group is not exposed to any unusual, entity specific or
scheme specific risks.
Formal valuations of the Plan by a professionally qualified actuary are carried out at least every three years using the projected unit method. Under
this method, the current service cost will increase in relation to the salaries of the members in future years as those members approach retirement.
The latest available full actuarial valuation was at 31 March 2021.
115
Porvair plc Annual Report & Accounts 2023
Financial statements
The principal actuarial assumptions adopted in the 2021 valuation were:
2021 valuation
assumptions %
Past service investment return:
Pre-retirement discount rate
2.85
Post-retirement discount rate
1.50
Salary increases
3.10
A full triennial actuarial valuation of the assets and liabilities of The Plan was completed, based on data at 31 March 2021. The actuarial value of
the assets on the funding basis was sufficient to cover 72% of the benefits that had accrued to members after allowing for expected increases in
pensionable remuneration. The funding deficit amounted to £13.8 million at 31 March 2021. As a result of the review, the Group and the Trustees
agreed for employer contributions to be 18.8% of salary. A £264,000 annual cash contribution towards the running costs of the scheme was also
agreed, increasing by 3.5% per annum. The Group also committed to increase annual contributions in respect of the past service deficit from
£1.6 million per annum to £2.1 million per annum, commencing December 2022. The funding shortfall is expected to be eliminated by
December 2028. The next full actuarial valuation of the scheme will be based on the pension scheme’s position at 31 March 2024 and is
expected to be completed before June 2025.
The pension charge for the year was £0.4 million (2022: £0.6 million) and the funding via employer contributions was £2.6 million
(2022: £2.1 million). The Group expects to make contributions of £2.6 million to the Plan in the next financial year.
The valuation of the deficit in the balance sheet is based on the most recent actuarial valuation of the Plan as updated by a qualified actuary to take
account of the market value of the assets and the present value of the liabilities of the Plan at 30 November 2023.
Balance sheet
The financial assumptions used to calculate Plan liabilities under IAS 19 were:
2023
2022
Valuation method
Projected
Unit
Projected
Unit
Discount rate
5.2%
4.3%
RPI inflation rate
3.2%
3.2%
CPI inflation rate
2.8%
2.7%
General salary increases
3.0%
3.0%
Rate of increase of pensions in payment:
– pre 6 April 1997
0.0%
0.0%
– post 5 April 1997 to pre 6 April 2005
2.7%
2.6%
– post 5 April 2005
1.9%
1.8%
Rate of increase for deferred pensioners
2.8%
2.7%
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in the industry.
The SAPS base mortality tables have been used, with a 122% multiplier allowing for future improvements of 1.25% per annum (2022: 1.25% per
annum). These assumptions translate into an average life expectancy in years for a pensioner retiring at age 65:
2023
Years
2022
Years
Retiring at the end of the reporting period:
– Male
19.3
19.7
– Female
21.5
21.9
Retiring 15 years aſter the end of the reporting period:
– Male
20.0
20.5
– Female
22.5
23.0
The Plan’s membership numbers as at the year end are as follows:
2023
Number of
members
2022
Number of
members
Active
27
27
Deferred
187
202
Pensioner
277
274
491
503
20 Retirement benefit obligations
continued
116
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
Sensitivities have been calculated by valuing the Plan’s defined benefit obligation at 30 November 2023 using the same methodology, with
relevant changes to the assumptions. The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
Impact on defined benefit obligation
Change in assumption
Increase in assumption
Decrease in assumption
Discount rate
0.1%
Decrease of 1.2%
Increase of 1.2%
Inflation rate
0.1%
Increase of 0.5%
Decrease of 0.5%
Life expectancy
1 year
Increase of 3.5%
Decrease of 3.3%
The assets in the Plan are:
Value at
30 November
2023
£’000
Value at
30 November
2022
£’000
Equities
3,953
4,171
Bonds
2,356
2,448
Gilts
1,744
3,311
Liability driven investment
7,744
7,348
Infrastructure
4,330
3,974
Other
3,146
3,217
Fair value of Plan assets
23,273
24,469
Present value of unfunded obligations
(30,849)
(34,110)
Deficit in the Plan (excluding deferred tax)
(7,576)
(9,641)
The assets listed above are stated at their quoted market price in an active market. Investment performance and asset class designation are
regularly reviewed by the Plan’s trustees.
The analysis of movement in the deficit in the Plan for the year is as follows:
2023
£’000
2022
£’000
Deficit at 1 December
(9,641)
(12,602)
Contributions paid
2,605
2,111
Current service cost
(128)
(232)
Administration expense
(300)
(324)
Other finance expense
(365)
(181)
Actuarial gain
253
1,587
Deficit at 30 November
(7,576)
(9,641)
The change in the present value of the Plan assets during the year is as follows:
2023
£’000
2022
£’000
Plan assets at 1 December
24,469
36,971
Benefit payments
(1,733)
(1,801)
Company contributions
2,605
2,111
Administration expense
(300)
(324)
Member contributions
120
110
Interest income on Plan assets
1,067
574
Loss on Plan assets (excluding interest income)
(2,955)
(13,172)
Plan assets at 30 November
23,273
24,469
The change in the present value of the Plan liabilities during the year is as follows:
2023
£’000
2022
£’000
Plan liabilities at 1 December
(34,110)
(49,573)
Current service cost
(128)
(232)
Interest cost
(1,432)
(755)
Member contributions
(120)
(110)
Benefits paid
1,733
1,801
Gain on change in financial and demographic assumptions
3,208
14,759
Plan liabilities at 30 November
(30,849)
(34,110)
20 Retirement benefit obligations
continued
117
Porvair plc Annual Report & Accounts 2023
Financial statements
The Plan liabilities by participant member status are as follows:
2023
£’000
2022
£’000
Active
(6,760)
(7,314)
Deferred
(12,187)
(13,414)
Pensioner
(11,902)
(13,382)
Plan liabilities at 30 November
(30,849)
(34,110)
The weighted average duration of the Plan scheme liabilities at the end of the reporting period is 12 years (2022: 13 years).
The movements in the Plan during the year are as follows:
Income statement
2023
£’000
2022
£’000
Analysis of amounts chargeable to operating profit:
Current service cost
(128)
(232)
Administration expense
(300)
(324)
Amount chargeable to operating profit
(428)
(556)
Analysis of amounts (charged)/credited to other finance income and costs:
Interest on Plan liabilities
(1,432)
(755)
Expected return on Plan assets
1,067
574
Net amount charged to other finance income and costs
(365)
(181)
Total chargeable to the income statement before deduction of tax
(793)
(737)
Other items
Analysis of amounts recognised in the consolidated statement of comprehensive income:
Actual loss on assets in excess of expected return
(2,955)
(13,172)
Gain on change in financial and demographic assumptions
3,208
14,759
Total actuarial gain recognised in the consolidated statement of comprehensive income
253
1,587
Cumulative actuarial loss recognised in the consolidated statement of comprehensive income
(7,573)
(7,826)
21 Provisions
Dilapidations
£’000
Warranty
£’000
Total
£’000
At 1 December 2022
328
3,692
4,020
Additional charge in the year
–
1,486
1,486
Utilisation of provision
–
(294)
(294)
Release of provision
–
(1,622)
(1,622)
Unwinding of discount
35
–
35
Exchange
–
(19)
(19)
At 30 November 2023
363
3,243
3,606
Provisions arise from potential claims on major contracts, sale warranties, and discounted dilapidations for leased property. Matters that could
affect the timing, quantum and extent to which provisions are utilised or released, include the impact of any remedial work, claims against
outstanding performance bonds, and the demonstrated life of the filtration equipment installed. The outflow of economic benefits in relation to
warranty provisions is expected to be within one year, whilst the outflow on dilapidations is expected to be greater than one year.
Analysis of total provisions
2023
£’000
2022
£’000
Current
3,243
3,692
Non-current
363
328
Net book value at 30 November
3,606
4,020
20 Retirement benefit obligations
continued
118
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
22 Share capital and share premium account
Number of
shares
Share capital
£’000
Share premium
account
£’000
Total
£’000
At 1 December 2021
46,201,685
924
37,078
38,002
Issue of shares on exercise of share options
123,896
3
548
551
At 30 November 2022
46,325,581
927
37,626
38,553
At 1 December 2022
46,325,581
927
37,626
38,553
Issue of shares on exercise of share options
34,217
–
152
152
At 30 November 2023
46,359,798
927
37,778
38,705
The Company has one class of ordinary shares which carry no right to fixed income. All of the Company’s shares in issue are fully paid and each
share carries the right to vote at general meetings.
In 2023, 34,217 (2022: 123,896) ordinary shares of 2 pence each were issued on the exercise of Save As You Earn share options for cash
consideration of £0.2 million (2022: £0.6 million).
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 Share Plan. The EBT has waived its rights to dividends. During the year, the Group purchased 120,000
ordinary shares of 2 pence each (2022: 120,000) for a total consideration of £0.7 million (2022: £0.7 million). During the year the EBT did not
issue any ordinary shares (2022: 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 £4.5 million (2022: £3.8 million).
As at 30 November 2023, the EBT held a total of 495,700 ordinary shares of 2 pence each (2022: 375,700) at a cost of £3.0 million (2022:
£2.2 million) and a market value of £2.9 million (2022: £2.1 million).
23 Share options and share-based payments
Share options are granted to Executive Directors and to selected employees. Details of the share options awarded to the Executive Directors,
including exercise price and performance conditions, are disclosed in the Remuneration report on pages 65 to 82.
These equity settled, share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the
equity settled, share-based payments is expensed to the income statement on a straight line basis over the vesting period, based on the Group’s
estimate of shares that will eventually vest. The corresponding entry is recognised in equity.
Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best
estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Details of the outstanding share options are:
Scheme
Year of
grant
Exercise
period
Subscription
price
(pence)
2023
Number of
shares
2022
Number of
shares
2014 5yr Save As You Earn Scheme
2017
2022 - 2023
398.00
–
12,209
2014 3yr Save As You Earn Scheme
2019
2022 - 2023
470.00
–
24,075
2014 5yr Save As You Earn Scheme
2019
2024 - 2025
470.00
20,422
20,422
2018 Long Term Share Plan
2020
2023 - 2030
2.00
84,640
92,000
2014 3yr Save As You Earn Scheme
2021
2024
460.00
120,151
124,140
2014 5yr Save As You Earn Scheme
2021
2026
460.00
32,993
32,993
2018 Long Term Share Plan
2021
2024 - 2031
2.00
203,800
203,800
2018 Long Term Share Plan
2022
2025 - 2032
2.00
119,600
119,600
2014 3yr Save As You Earn Scheme
2023
2026
514.00
124,911
–
2014 5yr Save As You Earn Scheme
2023
2028
514.00
58,317
–
2018 Long Term Share Plan
2023
2026 - 2033
2.00
154,545
–
At 30 November
919,379
629,239
The outstanding share options have a weighted average contractual life of 1.5 years (2022: 1.5 years).
119
Porvair plc Annual Report & Accounts 2023
Financial statements
Movements in share options during the year were:
2023
Weighted
average
exercise
price (pence)
2022
Weighted
average
exercise
price (pence)
2023
Number of
shares
2022
Number of
shares
At 1 December
157.15
249.97
629,239
655,773
Options granted
279.74
2.00
337,773
119,600
Options forfeited
182.41
461.29
(12,069)
(22,238)
Options exercised
444.90
443.89
(35,564)
(123,896)
At 30 November
190.73
157.15
919,379
629,239
Options exercisable at 30 November
2.00
445.77
84,640
36,284
Options not exercisable at 30 November
209.86
139.49
834,739
592,955
Total
190.73
157.15
919,379
629,239
Options granted during the year were:
Year of
grant
Scheme
Exercise
price
(pence)
2023
Number of
shares
2022
Number of
shares
2022
2018 LTSP
2.00
–
119,600
2023
3yr SAYE
514.00
124,911
–
2023
5yr SAYE
514.00
58,317
–
2023
2018 LTSP
2.00
154,545
–
Total
337,773
119,600
Options forfeited during the year were:
Year of
grant
Scheme
Exercise
price
(pence)
2023
Number of
shares
2022
Number of
shares
2017
5yr SAYE
398.00
–
25
2020
2018 LTSP
2.00
7,360
–
2019
3yr SAYE
470.00
2,067
1,715
2019
5yr SAYE
470.00
–
–
2021
3yr SAYE
460.00
2,642
18,542
2021
5yr SAYE
460.00
–
1,956
Total
12,069
22,238
Options exercised during the year were:
Year of
grant
Scheme
Exercise
price
(pence)
2023
Number of
shares
2022
Number of
shares
2017
5yr SAYE
398.00
12,209
44,441
2019
3yr SAYE
470.00
22,008
79,455
2021
3yr SAYE
460.00
1,347
–
Total
35,564
123,896
For options exercised in the year, the weighted average share price at the date of exercise was 636 pence (2022: 518 pence).
23 Share options and share-based payments
continued
120
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
A summary of the outstanding share option fair value assumptions is given below:
Grant date
Scheme
01/10/19
SAYE 2014
5 year
07/02/20
Porvair 2018
LTSP
02/02/21
Porvair 2018
LTSP
24/04/21
Porvair 2018
LTSP
01/06/21
SAYE 2014
3 year
01/06/21
SAYE 2014
5 year
04/02/22
Porvair 2018
LTSP
01/06/23
SAYE 2014
3 year
01/06/23
SAYE 2014
5 year
02/02/23
Porvair 2018
LTSP
Share price at grant date
586.00p
770.00p
540.00p
552.00p
570.00p
570.00p
676.00p
650.00p
650.00p
640.00p
Exercise price
470.00p
2.00p
2.00p
2.00p
460.00p
460.00p
2.00p
514.00p
514.00p
2.00p
Shares under option
20,422
84,640
157,600
46,200
120,151
32,993
119,600
124,911
58,317
154,545
Vesting period (years)
5
3
3
3
3
5
3
3
5
3
Expected volatility
36%
37%
45%
46%
46%
42%
47%
52%
47%
46%
Expected life (years)
5
3
3
3
3
5
3
3
5
3
Risk free rate
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
Dividend yield
0.80%
0.64%
0.93%
0.91%
0.88%
0.88%
0.72%
0.89%
0.89%
0.77%
Fair value per option (£)
2.28535
7.53527
5.23294
5.35290
2.18112
2.38850
6.59547
2.72508
2.97161
6.23556
The expected volatility is based on historic share price movements. The Directors anticipate it is possible the performance criteria in relation to
certain share options may not be met.
Share-based payments
2023
£’000
2022
£’000
Charge for the year
1,048
1,057
24 Cash generated from operations
2023
£’000
2022
£’000
Operating profit
21,240
19,810
Adjustments for:
– Fair value movement of derivatives through profit and loss
(15)
(255)
– Share-based payments
1,048
1,057
– Depreciation of property, plant and equipment and amortisation of intangibles
4,583
3,845
– Depreciation of right-of-use assets
2,232
2,212
– Impairment of property, plant, equipment
38
186
– (Gain)/loss on disposal of assets
(2)
14
Operating cash flows before movement in working capital
29,124
26,869
– Increase in inventories
(430)
(4,919)
– Decrease/(increase) in trade and other receivables
973
(2,044)
– (Decrease)/increase in trade and other payables
(3,019)
5,032
– Decrease in provisions
(392)
(783)
Increase in working capital
(2,868)
(2,714)
Post-employment benefits (net cash movement)
(2,177)
(1,357)
Cash generated from operations
24,079
22,798
23 Share options and share-based payments
continued
121
Porvair plc Annual Report & Accounts 2023
Financial statements
25 Acquisitions
(a) HRW Inc. business and assets
On 3 March 2023, the Group acquired certain business and assets from HRW Inc., a small engineering operation based in Nampa, Idaho,
and key supplier to the Group’s microelectronics filtration facility in Idaho. The acquisition expands machining and product design skills to
that location.
The total maximum consideration is £0.9 million, consisting of initial and deferred consideration. In the period since acquisition, the business
contributed £0.1 million of adjusted operating profit to the Group results. Had the acquisition been consolidated from 1 December 2022, the
income statement would show adjusted operating profit of £22.7 million.
The following table sets out the purchase consideration, together with the fair value of assets acquired and liabilities assumed:
Total
£’000
Initial cash consideration
668
Deferred cash consideration
200
Total purchase consideration
868
Fair value of net assets acquired (below)
(679)
Goodwill
189
Fair value of identifiable assets acquired and liabilities assumed:
Fair value
£’000
Technology and know-how (included within intangible assets)
343
Property, plant and equipment (including right-of-use assets)
538
Inventory
37
Trade and other payables (including lease liabilities)
(239)
Fair value of net assets acquired
679
A valuation of the identifiable intangible assets has been carried out in the period. Acquired intangible assets comprise technology and know-
how of £0.3 million.
The goodwill is attributable to non-contractual relationships, the synergies between the business acquired and the operations of the Group, and
the potential to develop the technologies acquired. None of these meet the criteria for recognition of intangible assets separable from goodwill.
The goodwill recognised is attributable to the Aerospace & Industrial division and is expected to be deductible for income tax purposes.
(b) Ratiolab share capital
On 4 May 2023, the Group announced that it would acquire, subject to Hungarian regulatory approval, 100% of the issued share capital of two
businesses, Ratiolab GmbH and Ratiolab Kft. (together “Ratiolab”). Following receipt of Hungarian regulatory approval, the Group completed the
acquisition on 14 July 2023.
Ratiolab GmbH, located outside Frankfurt, sells a wide range of laboratory consumables in Europe and the Middle East. Ratiolab Kft., located
close to Budapest, manufactures laboratory consumables in an 8,000m
2
facility, the freehold of which is included with the acquisition. Ratiolab
joins the Group’s Laboratory division, offering a complementary product range and adding European manufacturing capabilities, injection
moulding expertise, and routes to market.
The acquisition completed on a cash free, debt free basis and subject to an agreed level of working capital. Total cash consideration of
£8.1 million was paid in the year with acquired net debt of £4.0 million being settled on or shortly after acquisition.
In the period since acquisition, Ratiolab contributed £2.8 million of revenue and £0.2 million of adjusted operating profit to the Group results.
Had the acquisition been consolidated from 1 December 2022, the income statement would show revenue of £181.7 million and adjusted
operating profit of £22.8 million.
The following table sets out the consideration paid, together with the provisional fair value of assets acquired and liabilities assumed:
Total
£’000
Cash consideration
8,108
Provisional fair value of net assets acquired (below)
(2,872)
Goodwill
5,236
122
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
Provisional fair value of identifiable assets acquired and liabilities assumed:
Fair value
£’000
Property, plant and equipment (including right-of-use assets)
5,123
Trademark, customer order book and relationships (included within intangible assets)
2,897
Inventory
1,405
Trade and other receivables
650
Net debt
(3,955)
Deferred tax liability
(869)
Lease liabilities
(1,609)
Trade and other payables
(770)
Provisional fair value of net assets acquired
2,872
An independent valuation of the identifiable intangible assets has been carried out in the period. Acquired intangible assets comprise trademarks
of £0.6 million, a customer order book of £0.1 million and customer relationships of £2.2 million.
The goodwill is attributable to non-contractual relationships, the synergies between the business acquired and the operations of the Group, and
the potential to develop the technologies acquired. None of these meet the criteria for recognition of intangible assets separable from goodwill.
The goodwill recognised is attributable to the Laboratory division and is not expected to be deductible for income tax purposes.
The fair value of trade and other receivables of £0.7 million includes net trade receivables of £0.6 million, all of which is expected to be
collectible.
These provisional fair values may be adjusted in future in accordance with IFRS 3 –
Business Combinations
.
(c) Deferred and contingent consideration from acquisitions
A summary of deferred and contingent consideration on acquisitions:
2023
£’000
2022
£’000
At 1 December
945
1,810
Deferred consideration
200
–
Cash paid in year
(1,028)
(1,000)
Unwind of discount
55
135
Exchange
(11)
–
At 30 November
161
945
2023
£’000
2022
£’000
Included within other payables:
– Contingent consideration – current
–
945
– Deferred consideration – current
38
–
– Deferred consideration – non-current
123
–
161
945
26 Events aſter the reporting date
Following the year-end, on 4 December 2023, the Group acquired 100% of the share capital of European Filter Corporation NV (“EFC”), a
filtration business based in Lummen, Belgium. EFC has expertise in the manufacture of mist elimination filters used in the production of industrial
feedstocks and well established industrial filtration sales channels in north east Europe. EFC joins the Group’s Aerospace & Industrial division,
bringing complementary products and engineering as well as strengthening European routes to market.
The acquisition is on a cash free, debt free basis and subject to an agreed level of working capital. The provisional value of net assets acquired
includes property, plant and equipment; inventory; trade and other receivables; and trade and other payables. The initial cash consideration of
£10.3 million was paid after the year-end in December 2023. In accordance with the sale and purchase agreement, completion accounts are not
required until after the date of approval of these financial statements. Adjustments have not yet been made to the net assets acquired to reflect
their fair values, including the recognition of acquired intangible assets separable from goodwill.
The provisional value of initial consideration and provisional fair value of net assets acquired will be determined in future in accordance with IFRS 3
–
Business Combinations
and the sale and purchase agreement.
25 Acquisitions
continued
123
Porvair plc Annual Report & Accounts 2023
Financial statements
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and interest rate cash flow risk), credit risk
and liquidity risk. The Group’s overall risk management programme is disclosed on pages 22 to 25 of the Strategic report, page 57 of the
Directors’ report and page 60 and 61 of the Corporate Governance report. The Group uses derivative financial instruments to hedge certain risk
exposures.
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily in respect of the
US dollar and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in
foreign operations.
(i) US dollar
The Group has investments in its US based subsidiaries denominated in US dollars. The Group does not hedge against the impact of exchange
rate movements on the retranslation of profits and losses of overseas operations.
The UK operations generate significant US dollar revenue and forward contracts are used to reduce the impact of movements in the US dollar
exchange rate.
The Group has the following outstanding US dollar forward contracts:
2023
US$’000
2022
US$’000
Outstanding forward contracts
10,000
13,000
The Group has the following current assets and liabilities denominated in US dollars:
2023
US$’000
2022
US$’000
Trade receivables
15,546
17,048
Cash balances
6,715
9,713
Other current assets
15,255
15,356
Trade payables
(5,017)
(5,694)
Other current liabilities
(8,381)
(11,128)
24,118
25,295
The US dollar weakened by 6% over the year to 30 November 2023 (2022: strengthened by over 10%) compared to Sterling. For illustrative
purposes, if the US dollar exchange rate were to move by 10% against Sterling, the Group would make the following gains/(losses):
2023
£’000
2022
£’000
US dollar strengthens
2,116
2,360
US dollar weakens
(1,733)
(1,931)
(ii) Euro
The Group has investments in its European based subsidiaries denominated in Euros. The Group does not hedge against the impact of exchange
rate movements on the retranslation of profits and losses of overseas operations.
The UK operations generate Euro revenues and forward contracts are used to reduce the impact of Euro exchange rate movements.
The Group has the following outstanding Euro forward contracts:
2023
€’000
2022
€’000
Outstanding forward contracts
–
400
The Group has the following current assets and liabilities denominated in Euros:
2023
€’000
2022
€’000
Trade receivables
5,054
4,891
Cash balances
4,785
2,904
Other current assets
15,318
2,820
Trade payables
(2,314)
(3,212)
Other current liabilities
(15,114)
(5,588)
7,729
1,815
124
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
The Euro weakened by under 1% over the year to 30 November 2023 (2022: strengthened by 2%) compared to Sterling. For illustrative
purposes, if the Euro exchange rate were to move by 10% against Sterling, the Group would make the following gains/(losses):
2023
£’000
2022
£’000
Euro strengthens
740
175
Euro weakens
(606)
(143)
Cash flow interest rate risk
The Group is exposed to cash flow risk. For illustrative purposes, if interest rates had been 0.5% higher/lower on borrowings throughout the year
with all other variables held constant, the post tax profit for the year would have been £15,000 (2022: £21,000) lower/higher, respectively.
Credit risk
Credit risk is disclosed in notes 15 and 16.
Liquidity risk
Banking facilities, including a maturity profile, are disclosed in note 18. Interest is payable based on the length of the revolving facilities, typically
between 1 and 3 months and on a quarterly basis for the term loan. The Group is required to meet banking covenants on a quarterly basis. Whilst
the Group has sufficient cash reserves and expects future trading to enable it to meet its cash flow obligations, should trading performance
prevent it from doing so then the lender has recourse over the Group’s assets. Cash and cash equivalents held in the UK is subject to a Composite
Account System, which is a banking offset arrangement that allows the set-off of overdraft balances with retained cash.
The table below analyses the Group’s non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity
groupings based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in
the analysis to the extent that their contractual maturities are essential for an understanding of the timing of cash flows. The amounts disclosed are
the contractual undiscounted cash flows.
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
Greater than
5 years
£’000
Carrying
amount
liabilities
£’000
Lease liabilities
2,447
2,447
5,066
5,098
13,399
Trade and other payables
20,495
–
–
–
20,495
At 30 November 2023
22,942
2,447
5,066
5,098
33,894
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
Greater than
5 years
£’000
Carrying
amount
liabilities
£’000
Lease liabilities
2,467
2,467
3,310
4,503
11,472
Derivatives
319
–
–
–
319
Trade and other payables
24,884
–
–
–
26,582
At 30 November 2022
27,670
2,467
3,310
4,503
38,373
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined below:
•
Quoted prices 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); and
•
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial liabilities at fair value through profit or loss:
– Trading derivatives
–
–
–
–
At 30 November 2023
–
–
–
–
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets at fair value through profit or loss:
– Trading derivatives
–
(319)
–
(319)
– Contingent consideration
–
–
(945)
(945)
At 30 November 2022
–
(319)
(945)
(1,264)
27 Financial risk management
continued
125
Porvair plc Annual Report & Accounts 2023
Financial statements
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using
valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on
entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. There have
been no movements between levels in the year.
The tables below analyse financial instruments by category:
2023
2022
Other financial
assets at
amortised
cost
£’000
Financial
assets at
fair value
through
profit and
loss
£’000
Financial
assets at
fair value
through
comprehensive
income
£’000
Total
£’000
Other financial
assets at
amortised
cost
£’000
Financial
assets at
fair value
through
profit and
loss
£’000
Financial
assets at
fair value
through
comprehensive
income
£’000
Total
£’000
Assets as per the balance sheet
Foreign exchange contracts
–
250
–
250
–
554
–
554
Trade and other receivables
excluding prepayments
21,126
–
–
21,126
23,132
–
–
23,132
Cash and cash equivalents
16,839
–
–
16,839
18,297
–
–
18,297
At 30 November
37,965
250
–
38,215
41,429
554
–
41,983
Financial assets at fair value through profit and loss are categorised as level 2 instruments.
2023
2022
Other financial
liabilities at
amortised
cost
£’000
Financial
liabilities at
fair value
through
profit and
loss
£’000
Financial
liabilities at
fair value
through
comprehensive
income
£’000
Total
£’000
Other financial
liabilities at
amortised
cost
£’000
Financial
liabilities at
fair value
through
profit and
loss
£’000
Financial
liabilities at
fair value
through
comprehensive
income
£’000
Total
£’000
Liabilities as per the balance sheet
Borrowings
–
–
–
–
–
–
–
–
Foreign exchange contracts
–
–
–
–
–
(319)
–
(319)
Trade and other payables excluding
non-financial liabilities
(20,495)
–
–
(20,495)
(24,884)
–
–
(24,884)
Bank overdraſts
(2,787)
–
–
(2,787)
At 30 November
(23,282)
–
–
(23,282)
(24,884)
(319)
–
(25,203)
The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short term nature. The fair values
of the Group’s other financial instruments are not materially different to the book value recorded within these accounts.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to
shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from the prior year.
The Group’s objectives when managing capital are to safeguard the Group’s ability to operate as a going concern in order to provide returns to
shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to adjust the capital
structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to
reduce debt.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net cash or net debt (excluding lease liabilities) divided by
total capital. Net cash or net debt is calculated as total borrowings as shown in the Consolidated balance sheet less cash and cash equivalents.
Total capital is calculated as ‘equity’ as shown in the Consolidated balance sheet. The gearing ratio at 30 November 2023 was not applicable
because the Group had a net cash position (2022: not applicable).
The Group’s borrowings are subject to certain covenant restrictions imposed by the banks. These covenants have been fully complied with during
the year ended 30 November 2023. The multi-currency facility is secured by fixed and floating charges against certain of the Group’s assets in the
UK and wider Europe.
27 Financial risk management
continued
126
Porvair plc Annual Report & Accounts 2023
Financial statements
Notes to the consolidated financial statements
continued
28 Contingent liabilities
At 30 November 2023, the Group had the following advanced payment and performance bonds issued to customers in the ordinary course
of business:
US$’000
€’000
Advanced payment bonds
–
2,514
Performance bonds
–
499
At 30 November 2023
–
3,013
US$’000
€’000
Advanced payment bonds
–
657
Performance bonds
956
353
At 30 November 2022
956
1,010
The advanced payment and performance bonds are expected to expire no later than October 2024 and July 2027 respectively.
29 Commitments
Capital and other financial commitments
Contracts placed for future capital expenditure on property, plant and equipment not provided in the financial statements at 30 November 2023
were £1.3 million (2022: £2.5 million).
30 Key management compensation and related party transactions
The Board of Directors, including the Non-Executive Directors, are classified as key management. Their remuneration is shown in the
Remuneration report. Their aggregate emoluments are disclosed in the table below.
2023
£’000
2022
£’000
Salaries and other short term employee benefits
1,315
1,259
Post-employment benefits
96
34
Share-based payments
745
852
2,156
2,145
Dividends paid to the Board of Directors, including the Non-Executive Directors, during the year was £32,000 (2022: £29,000).
There were no other related party transactions in the years ended 30 November 2023 and 30 November 2022.
127
Porvair plc Annual Report & Accounts 2023
Financial statements
31 Subsidiary undertakings
The Group’s ultimate parent company is Porvair plc which is incorporated in England.
Details of the Group’s subsidiary undertakings at 30 November 2023 are as follows:
Subsidiary name
Subsidiary registered address
Activity
Country of
incorporation
and operation
% holding
in ordinary
shares
Held directly:
Porvair Corporation
700 Shepherd Street, Hendersonville,
NC 28792, USA
Holding
USA
100%
Porvair Filtration India Private Limited
401 Centrum IT Park, Thane MH 400604, India
Trading
India
64%
Porvair Filtration Limited*
7 Regis Place, Bergen Way, King's Lynn, UK
Holding
England
100%
Porvair Holdings B.V.
Nordezee 8, 3144DB Maassluis
Holding
Netherlands
100%
Porvair Selee Filtration Technology (Hubei)
Company Limited
Square Industrial Park, Xiaogan 432000, China
Trading
China
100%
Seal Analytical Limited*
7 Regis Place, Bergen Way, King's Lynn, UK
Trading
England
100%
Seal Analytical Shanghai Company Limited
128 Xiangyin Road, Shanghai 200433, China
Trading
China
100%
Kbiosystems Limited*
7 Regis Place, Bergen Way, King's Lynn, UK
Trading
England
100%
Held indirectly:
Dahlman Industrial Group B.V.
PO Box 438, 3140 AK, Maassluis, Netherlands
Holding
Netherlands
100%
Dahlman Filter Services B.V.
PO Box 438, 3140 AK, Maassluis, Netherlands
Trading
Netherlands
100%
Dahlman Filter Services GmbH
Boxgraben 38, 52064 Aachen, Nord
Rhein-Westphalia, Germany
Trading
Germany
100%
J G Finneran Associates, Inc.
3600 Reilly Court, Vineland, NJ 08360, USA
Trading
USA
100%
Microfiltrex Limited
7 Regis Place, Bergen Way, King's Lynn, UK
Dormant
England
100%
Platex, Plaat- en Constructiewerken B.V.
PO Box 438, 3140 AK, Maassluis, Netherlands
Dormant
Netherlands
100%
Porvair Filtration Group Inc.
301 Business Lane, Ashland, VA 23005, USA
Trading
USA
100%
Porvair Filtration Group Limited
7 Regis Place, Bergen Way, King's Lynn, UK
Trading
England
100%
Porvair Sciences Limited
7 Regis Place, Bergen Way, King's Lynn, UK
Trading
England
100%
Pulse Instrumentation GmbH
Werkstrasse 5, 22844 Norderstedt, Germany
Trading
Germany
100%
Rohasys B.V.
Provinciënbaan 4, 5121 DL Rijen, Netherlands
Trading
Netherlands
100%
Seal Analytical GmbH
Werkstrasse 5, 22844 Norderstedt, Germany
Trading
Germany
100%
Seal Analytical Inc.
6501 W. Donges Bay Road, Mequon,
WI 53092, USA
Trading
USA
100%
Selee Corporation
700 Shepherd Street, Hendersonville,
NC 28792, USA
Trading
USA
100%
Technisch Bureau Dahlman B.V.
PO Box 438, 3140 AK, Maassluis, Netherlands
Trading
Netherlands
100%
Ratiolab GmbH
Am Siebenstein 12, 63303 Dreieich, Germany
Trading
Germany
100%
Ratiolab Hungary Kſt.
2111 Szada, Ipari Park út, Budapest, Hungary
Trading
Hungary
100%
*Porvair Filtration Limited (03115555), Seal Analytical Limited (04008521) and Kbiosystems Limited (02389004) have taken the audit exemption
under S479A Companies Act 2006.
128
Porvair plc Annual Report & Accounts 2023
Financial statements
Parent Company – Balance sheet
Company registered number 01661935
As at 30 November
Note
2023
£’000
Restated
2022
£’000
Non-current assets
Property, plant and equipment
4
15
11
Right-of-use assets
5
12
59
Investments
6
71,257
62,987
Deferred tax asset
12
2,330
2,672
Amounts receivable from Group undertakings
7
17,955
18,513
91,569
84,242
Current assets
Amounts receivable from Group undertakings
7
4,735
1,825
Other receivables
8
79
68
Income tax receivable
42
277
Derivative financial instruments
13
227
554
Cash and cash equivalents
9
66
692
5,149
3,416
Current liabilities
Trade and other payables
10
(2,127)
(2,645)
Lease liabilities
5
(9)
(46)
Overdraſt and borrowings
11
(2,787)
–
Derivative financial instruments
13
–
(223)
(4,923)
(2,914)
Net current assets
226
502
Non-current liabilities
Lease liabilities
5
–
(11)
Retirement benefit obligations
14
(7,576)
(9,641)
(7,576)
(9,652)
Net assets
84,219
75,092
Capital and reserves
Share capital
15
927
927
Share premium account
37,778
37,626
Retained earnings
45,514
36,539
Total equity
84,219
75,092
The financial statements on pages 128 to 137 were approved by the Board of Directors on 2 February 2024 and were signed on its behalf by:
B D W Stocks
J A Mills
129
Porvair plc Annual Report & Accounts 2023
Financial statements
Parent Company – Profit for the financial year
As permitted by Section 408 of the Companies Act 2006, no income statement is presented for the parent company.
The profit for the financial year is £11.1 million (2022: £9.7 million).
Parent Company – Statement of changes in equity
Note
Share
capital
£’000
Share
premium
account
£’000
Retained
earnings
£’000
Total
equity
£’000
At 1 December 2021
924
37,078
27,794
65,796
Profit for the year
–
–
9,726
9,726
Other comprehensive income:
Actuarial gain in defined benefit pension plans (net of tax)
–
–
1,189
1,189
Total comprehensive income for the year
–
–
10,915
10,915
Share -based payments charge
–
–
1,057
1,057
Purchase of own shares (held in trust)
–
–
(749)
(749)
Issue of ordinary share capital
15
3
548
–
551
Dividends paid
–
–
(2,478)
(2,478)
At 30 November 2022
927
37,626
36,539
75,092
Profit for the year
–
–
11,136
11,136
Other comprehensive income:
Actuarial gain in defined benefit pension plans (net of tax)
–
–
190
190
Total comprehensive income for the year
–
–
11,326
11,326
Share-based payments charge (net of tax)
–
–
1,058
1,058
Purchase of own shares (held in trust)
–
–
(745)
(745)
Issue of ordinary share capital
15
–
152
–
152
Dividends paid
–
–
(2,664)
(2,664)
At 30 November 2023
927
37,778
45,514
84,219
130
Porvair plc Annual Report & Accounts 2023
Financial statements
Parent Company – Notes to the financial statements
1 Summary of significant accounting policies
Basis of accounting
The Company financial statements are presented as required by the Companies Act 2006. The Company meets the definition of a qualifying
entity under Financial Reporting Standard (“FRS”) 100 -
Application of Financial Reporting Requirements
issued by the Financial Reporting Council.
Accordingly, the financial statements have been prepared in accordance with FRS 101 –
Reduced Disclosure Framework
as issued by the
Financial Reporting Council.
The financial statements have been prepared on a going concern basis and under the historical cost convention as modified by the recognition
of certain financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.
The following exemptions from the requirements of International Financial Reporting Standards (“IFRS”) have been applied in the preparation
of these financial statements, in accordance with FRS101 –
Reduced Disclosure Framework
:
•
Paragraphs 45(b) and 46 to 52 of IFRS 2 –
Share-based Payment
(details of the number and weighted average exercise prices of share options,
and how the fair value of goods or services received was determined).
•
IFRS 7 –
Financial Instruments: Disclosures
.
•
Paragraphs 91 to 99 of IFRS 13 –
Fair Value Measurement
(disclosure of valuation techniques and inputs used for fair value measurement
of assets and liabilities).
•
Paragraph 38 of IAS 1 –
Presentation of Financial Statements
comparative information requirements in respect of:
(i)
paragraph 79(a)(iv) of IAS 1 –
Presentation of Financial Statements;
(ii)
paragraph 73(e) of IAS 16 –
Property, Plant and Equipment
;
(iii)
paragraph 118(e) of IAS 38 –
Intangible Assets
(reconciliations between the carrying amount at the beginning and end of the period).
•
The following paragraphs of IAS 1 –
Presentation of Financial Statements:
(i)
paragraph 16 (statement of compliance with all IFRS);
(ii)
paragraph 38A (requirement for minimum of two primary statements, including cash flow statements);
(iii)
paragraph 38B-D (additional comparative information);
(iv)
paragraph 40A (retrospective restatement);
(v)
paragraph 111 (cash flow statement information); and
(vi)
paragraph 134-136 (capital management disclosures).
•
IAS 7 –
Statement of Cash Flows.
•
Paragraph 30 and 31 of IAS 8 –
Accounting Policies, Changes in Accounting Estimates and Errors
(requirement for the disclosure of
•
Information when an entity has not applied a new IFRS that has been issued but is not yet effective).
•
Paragraph 17 of IAS 24 –
Related Party Disclosures
(key management compensation).
•
The requirements in IAS 24 –
Related Party Disclosures
to disclose related party transactions entered into between two or more members
of a group.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with FRS101 –
Reduced Disclosure Framework
requires the use of certain critical accounting
estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both
current and future periods.
(a) Critical judgements in applying the Company’s accounting policies
In the course of preparing the financial statements, no judgements have been made in the process of applying the Company’s accounting
policies, other than those involving estimations, that have had a significant effect on the amounts recognised in the financial statements.
(b) Key sources of estimation uncertainty
Material estimates and assumptions are made in particular with regard to: establishing uniform depreciation periods for the Company;
assumptions used in the calculation of share-based payments; parameters for measuring pension and other provisions; and the likelihood that tax
assets can be realised. The key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that
may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below:
•
Retirement benefit obligation
The Company operates a defined benefit pension scheme, The Porvair plc Pension and Death Benefit Plan (the “Plan”), covering a number of
employees in the UK. The pension scheme is financed through a separate trust fund and is closed to new entrants. The present value of the
obligations of this scheme is subject to financial assumptions, and management obtains external actuarial guidance on this. Sensitivities in the
principal assumptions on valuing the Plan’s defined benefit obligation at 30 November 2023 have been calculated and are given in note 20
of the Group financial statements.
131
Porvair plc Annual Report & Accounts 2023
Financial statements
•
Estimation of LTSP share option charge
The long term share plan share options (“LTSPs”) have vesting conditions, as outlined in the Remuneration report, which can result in the vesting
of between 0% to 100% of each LTSP grant. One element of the share-based payment charge calculation of these LTSPs relies on management’s
best estimate forecast of the performance of the Group. As an example, if the success rate of the unvested share options were increased/
decreased by 10% then the share option charge would be £50,000 higher/lower.
Property, plant and equipment
Plant, machinery and equipment is capitalised at cost and is depreciated by equal annual amounts over their estimated useful lives. Annual
depreciation rates are between 10% and 33.33% straight line.
Fixed asset investments
Investments held as fixed assets are stated at cost less provision for impairment.
Interest income
Interest income is accrued on a straight line basis, by reference to the principal outstanding and the effective interest rate applicable, which is the
rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
Dividends
Dividends received from subsidiaries are recognised when received. Dividends paid to the Company’s shareholders are recognised as a liability
in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.
Impairment of assets
Assets are regularly reviewed to confirm their carrying values and in addition if there is indication of impairment. The company assesses on a
forward-looking basis the expected credit losses associated with its debt instruments carried at amortised cost. Where the expected realisable
value is lower than the book value, the excess of book value is charged to the income statement during the year. A provision for the impairment
of amounts receivable from group undertakings is established when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables.
Patents and trademarks
All expenditure on the registration, renewal and maintenance of patents and trademarks is expensed as incurred.
Foreign exchange
Monetary assets and liabilities denominated in foreign currencies are translated into Sterling at the rates of exchange ruling at the end of the
financial year.
Foreign exchange differences are taken to the income statement in the year in which they arise.
Taxation
Current tax is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes
items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. The
Company’s liability for current tax is calculated using tax rates that are relevant to the period.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Deferred tax is calculated at the tax rates which have been enacted or substantively enacted by the balance sheet date and are expected to apply
in the period when the liability is settled or the asset is realised. Deferred tax is recognised in the income statement, except when it relates to items
recognised directly to other comprehensive income or directly to equity. In this case, the deferred tax is also recognised in other comprehensive
income or directly in equity, respectively.
Pensions
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
For defined benefit retirement schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial
valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur.
The retirement benefit obligation in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised
past service cost and as reduced by the fair value of scheme assets.
Financial instruments
Financial assets and financial liabilities are recognised in the Company’s balance sheet when the Company becomes a party to the contractual
provisions of the instrument.
(a) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original
maturities of three months or less, and bank overdrafts. In the balance sheet, bank overdrafts are shown within borrowings in current liabilities.
1 Summary of significant accounting policies
continued
132
Porvair plc Annual Report & Accounts 2023
Financial statements
Parent Company – Notes to the financial statements
continued
(b) Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums
payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the effective
interest method and are added to the carrying amount of the instrument, to the extent that they are not settled in the period in which they arise.
(c) Trade and other payables
Trade and other payables are not interest bearing and are initially recognised at fair value and subsequently held at amortised cost.
(d) Lease liabilities
Lease liabilities are recorded at the present value of lease payments. Leases are discounted at the Company’s incremental borrowing rate, being
the rate that the Company would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment
with similar terms and conditions. Right-of-use assets are depreciated on a straight line basis over the lease term, or useful life if shorter.
Lease payments relating to low value assets or to short term leases are recognised as an expense on a straight line basis over the lease term.
Short term leases are those with 12 months or less duration. Low value assets are those below a cost of £4,000.
(e) Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments in the form of forward foreign exchange contracts to hedge its foreign currency exposure.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and subsequent changes in the fair value of foreign
currency derivatives are recognised immediately in the income statement. The Company recognises all forward foreign exchange contracts on
the balance sheet at fair value using external market data.
Share-based payments
Where the Company has granted rights over its equity instruments to the employees of subsidiary companies, there is a corresponding increase
recognised in the investment in subsidiary undertakings in those years.
The Company issues equity settled, share-based payments to certain employees. Equity settled, share-based payments are measured at fair value
at the date of grant. The fair value determined at the grant date of the equity settled, share-based payments is expensed on a straight line basis
over the vesting period, based on the Company’s estimate of shares that will eventually vest. The corresponding entry is recognised in equity.
At each balance sheet date, the Company revises its estimates of the number of share options that are expected to vest. It recognises the impact
of the revisions to original estimates, if any, in the income statement or, if relating to a subsidiary undertaking in investment in subsidiary
undertakings, with a corresponding adjustment to equity.
Fair value is measured by use of a Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best
estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Equity instruments
Ordinary shares are classified as equity. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Where the Company purchases its equity share capital (“treasury shares”), the consideration paid, including any directly attributable incremental
costs (net of income taxes), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where
such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to the Company’s equity holders.
Retained earnings
The retained earnings account represents the distributable reserves of the Company.
1 Summary of significant accounting policies
continued
133
Porvair plc Annual Report & Accounts 2023
Financial statements
2 Profit before income tax
During the year, the Company obtained the following services from the Company’s Auditor, RSM UK Audit LLP:
2023
£’000
2022
£’000
Fees payable to the Company’s Auditor for audit of parent company financial statements
30
28
30
28
3 Employees and Directors
The staff cost, including Executive Directors, for the year is shown below:
2023
£’000
2022
£’000
Staff costs
Wages and salaries
2,123
1,943
Social security costs
314
260
Other pension costs
117
111
Share-based payments
884
777
3,438
3,091
The average monthly number of staff, including Directors, employed during the year is as below:
2023
Average
Number
2022
Average
Number
Administration
11
11
11
11
The number of directors to whom retirement benefits are accruing under a defined contribution pension scheme is 1 (2022: 1). The number of
directors to whom retirement benefits are accruing under a defined benefit pension scheme is 1 (2022: 1).
Detailed disclosures of Directors’ individual remuneration and share options are given in the Remuneration report on pages 65 to 82, and in note
30 of the Group financial statements.
4 Property, plant and equipment
Plant,
machinery and
equipment
£’000
Cost
At 1 December 2022
185
Additions
13
Disposals
(33)
At 30 November 2023
165
Accumulated depreciation
At 1 December 2022
(174)
Charge for year
(9)
Disposals
33
At 30 November 2023
(150)
Net book value
At 30 November 2023
15
At 30 November 2022
11
The Company did not have any capital commitments at 30 November 2023 or 30 November 2022.
134
Porvair plc Annual Report & Accounts 2023
Financial statements
Parent Company – Notes to the financial statements
continued
5 Leases – Right-of-use assets and lease liabilities
Right-of-use assets
The movement in right-of-use assets is set out below:
Leasehold
buildings
£’000
Plant,
machinery and
equipment
£’000
Total
£’000
Cost
At 1 December 2022
193
5
198
At 30 November 2023
193
5
198
Accumulated depreciation
At 1 December 2022
(135)
(4)
(139)
Charge for year
(47)
–
(47)
At 30 November 2023
(182)
(4)
(186)
Net book value
At 30 November 2023
11
1
12
At 30 November 2022
58
1
59
Lease liabilities
The movement in the lease liability is set out below:
2023
£’000
2022
£’000
At 1 December
57
104
Repayments of lease liabilities
(49)
(49)
Interest on lease liabilities
1
2
At 30 November
9
57
Lease liabilities mature as follows:
Minimum lease liabilities falling due
2023
£’000
2022
£’000
Within one year – land and buildings
9
48
Within one year – property, plant and equipment
1
1
Total within one year
10
49
Between one and five years – land and buildings
–
9
Between one and five years – property, plant and equipment
–
1
Total between one and five years
–
10
Total commitment
10
59
Less: finance charges included above
(1)
(2)
Net present value of lease liabilities at 30 November
9
57
Current
9
46
Non-current
–
11
Total at 30 November
9
57
135
Porvair plc Annual Report & Accounts 2023
Financial statements
6 Fixed asset investments
Investments in subsidiary undertakings
2023
£’000
2022
£’000
Cost
At 1 December
62,987
62,707
Additions in the year
8,108
–
Disposed in the year
(1)
–
Capital contributions arising from share-based payments charge
163
280
At 30 November
71,257
62,987
Net book value
At 30 November
71,257
62,987
At 1 December
62,987
62,707
The capital contributions arising from the share-based payment charge represent the Company granting rights over its equity instruments to the
employees of subsidiary undertakings. This results in a corresponding increase in investments in subsidiary undertakings.
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
Details of the Company’s subsidiary undertakings are given in note 31 of the Group financial statements.
7 Amounts receivable from Group undertakings
2023
£’000
2022
£’000
Loans to subsidiary undertakings – Non-current assets
17,955
18,513
Loans to subsidiary undertakings – Current assets
4,727
1,817
Other amounts receivable from Group undertakings
8
8
22,690
20,338
Amounts owed by group undertakings are unsecured. Intercompany interest is charged at a commercial rate.
8 Other receivables
2023
£’000
2022
£’000
Amounts falling due within one year:
Prepayments
79
68
79
68
9 Cash and cash equivalents
2023
£’000
2022
£’000
Cash at bank and in hand
66
692
136
Porvair plc Annual Report & Accounts 2023
Financial statements
Parent Company – Notes to the financial statements
continued
10 Trade and other payables
2023
£’000
2022
£’000
Amounts falling due within one year:
Trade creditors
19
33
Taxation and social security
140
150
Other payables
–
945
Accruals and deferred income
1,968
1,517
2,127
2,645
Other payables relates to contingent consideration on acquisitions.
11 Overdraſt and borrowings
2023
£’000
2022
£’000
Bank overdraſt offset against cash balances in other Group companies under a
Group banking offset arrangement
2,787
–
Secured multi-currency revolving credit facility
–
–
2,787
–
Bank and other loans of the Company are repayable as follows:
2023
£’000
2022
£’000
Within one year
2,787
–
Two to five years
–
–
2,787
–
In May 2021, the Company agreed a €28 million (£24 million) four year secured revolving credit facility, with an option to extend by one year, plus
a €17 million (£15 million) accordion facility, with Barclays Bank plc and Citibank N.A., London Branch.
At 30 November 2023, the Company had €27.8 million/£24.0 million (2022: €27.7 million/£23.9 million) of unused credit facility and an
unutilised net £2.5 million (2022: £2.5 million) overdraft facility.
The multi-currency facility is secured by fixed and floating charges against the assets of the Company and its subsidiaries.
Included within bank overdrafts is £2.8 million (2022: £nil) representing non-interest bearing balances on cash pooling arrangements in the
Group.
Cash and cash equivalents held in the UK is subject to a Composite Account System, which is a banking offset arrangement that allows the set-off
of overdraft balances with retained cash for interest calculation purposes.
Overdraft limits within the Composite Account System are £13 million gross of which £2.8 million is utilised (2022: £nil). The Company held no
bank overdrafts excluding balances on cash pooling arrangements.
12 Deferred tax asset
The movement of deferred tax assets during the year is as follows:
Accelerated
capital
allowances
£’000
Other
short term
timing
differences
£’000
Share-
based
payments
£’000
Retirement
obligations
£’000
Total
£’000
At 1 December 2021
1
4
818
2,959
3,782
Charged to the income statement
(1)
59
(557)
(182)
(681)
Credited to equity in respect of share options
–
–
22
–
22
Charged to comprehensive income in respect of pension liabilities
–
–
–
(451)
(451)
At 30 November 2022
–
63
283
2,326
2,672
Charged to the income statement
(2)
(59)
147
(374)
(288)
Credited to equity in respect of share options
–
–
5
–
5
Charged to comprehensive income in respect of pension liabilities
–
–
–
(59)
(59)
At 30 November 2023
(2)
4
435
1,893
2,330
There were no unrecognised deferred tax amounts at 30 November 2023 (2022: £nil).
137
Porvair plc Annual Report & Accounts 2023
Financial statements
13 Derivative financial instruments
Forward foreign exchange contract assets and liabilities
2023
£’000
2022
£’000
Forward foreign exchange contracts – current assets
227
554
Forward foreign exchange contracts – current liabilities
–
(223)
227
331
14 Retirement benefit obligations
2023
£’000
2022
£’000
Defined benefit scheme deficit
7,576
9,641
The Company operates a defined benefit pension scheme, The Porvair plc Pension and Death Benefit Plan (the “Plan”), covering a number of
employees in the UK. The pension scheme is financed through a separate trust fund administered by Trustees with an independent Chairman.
The Plan was closed to new entrants in October 2001. Further details of the retirement benefit obligations are disclosed in note 20 of the Group
financial statements.
The Company operates a defined contribution pension scheme for a certain number of its employees. As at 30 November 2023, £5,000
(2022: £5,000) in relation to this pension scheme was outstanding to be paid.
15 Called up share capital
2023
£’000
2022
£’000
Allotted and fully paid:
46,359,798 ordinary shares of 2 pence each (2022: 46,325,581)
927
927
Details of shares issued and share options are disclosed in notes 22 and 23 of the Group financial statements, respectively.
16 Share-based payments
Details of share options of the Company and the share-based payments charge during the year are given in note 23 of the Group financial
statements.
17 Dividends
Details of dividends paid in the year and final dividends recommended to be paid after the year end are disclosed in note 9 of the Group financial
statements.
18 Contingent liabilities
The Company has no contingent liabilities at 30 November 2023 (2022: none).
19 Restatement
The Company has reviewed the intercompany balances receivable from its subsidiary undertakings and has reclassified amounts to non-current
assets which are not expected to be recalled or received by the Company within the next twelve months.
The restatement has not impacted the net assets of the Company, opening retained earnings or its profit for the year. In accordance with
FRS 101 –
Reduced Disclosure Framework
, the Company has also taken the election under IAS 1 40A-D in not presenting a third balance sheet.
The change in presentation has no impact on the results of the Group nor its financial position. Earnings per share for the Group is not impacted
by this restatement.
As previously
reported
2022
£’000
Adjustment
£’000
Restated
2022
£’000
Non-current assets
Amounts receivable from Group undertakings
–
18,513
18,513
Current assets
Amounts receivable from Group undertakings
20,338
(18,513)
1,825
20,338
–
20,338
138
Registrar services
Our shareholder register is managed and administered by Link Group. Link Group should be able to help you with most questions you have
in relation to your holding in Porvair plc shares.
Link can be contacted at:
Link Group
Central Square
29 Wellington Street
Leeds LS1 4DL
Telephone: 0371 664 0300 if calling from the United Kingdom, or +44 (0) 371 664 0300 if calling from outside the United Kingdom.
Calls are charged at the standard geographical rate and will vary by provider. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 09:00 –17:30, Monday to Friday excluding public holidays in England and Wales.
Email: shareholderenquiries@linkgroup.co.uk.
In addition, Link offers a range of other services to shareholders including a share dealing service and a share portal to manage your holdings.
Share dealing service
A share dealing service is available to existing shareholders to buy or sell the Company’s shares via Link Share Dealing Services. Online and telephone
dealing facilities provide an easy to access and simple to use service.
For further information on this service, or to buy or sell shares, please contact:
www.linksharedeal.com – online dealing
0371 664 0445 – telephone dealing (from outside the UK: +44 (0) 371 664 0445).
Email: info@linksharedeal.com
Please note that the Directors of the Company are not seeking to encourage shareholders to either buy or sell their shares. Shareholders in any
doubt as to what action to take are recommended to seek financial advice from an independent financial adviser authorised by the Financial
Services and Markets Act 2000.
Porvair plc Annual Report & Accounts 2023
Other information
Shareholder information
Porvair plc Annual Report & Accounts 2023
Other information
139
Financial calendar
Financial Calendar 2024
30 November 2023
Financial year end 2023
5 February 2024
Full year 2023 results announcement
16 April 2024
AGM
2 May 2024
Ex-dividend date
3 May 2024
Record date for dividend
31 May 2024
Half year 2024 period end
5 June 2024
Payment date for dividend
1 July 2024
Half year 2024 results announcement
18 July 2024
Ex-dividend date
19 July 2024
Record date for dividend
21 August 2024
Payment date for dividend
30 November 2024
Financial year end 2024
10 February 2025
Full year 2024 results announcement
Company Secretary
and registered office
Chris Tyler
Porvair plc
7 Regis Place
Bergen Way
King’s Lynn
Norfolk PE30 2JN
Telephone: +44 (0)1553 765500
Company registration number
01661935
Independent Auditor
RSM UK Audit LLP
25 Farringdon Street
London EC4A 4AB
Principal bankers
Barclays Bank plc
Barclays Commercial Bank
PO Box 885
Mortlock House
Station Road
Histon
Cambridge CB24 9DE
Citibank, N.A.
London branch
Citigroup Centre
33 Canada Square
London E14 5LB
Registrars and transfer office
Link Group
Central Square
29 Wellington Street
Leeds LS1 4DL
Solicitors
Travers Smith LLP
10 Snow Hill
London EC1A 2AL
Stockbrokers
Peel Hunt LLP
7th Floor
100 Liverpool Street
London EC2M 2AT
Porvair plc Annual Report & Accounts 2023
Other information
140
Contact details and advisers
Forward-looking statement
This Annual Report contains forward-looking statements with respect to
the financial condition, operations and performance of the Group. By their
nature, these statements involve uncertainty since future events and circumstances
can cause results and developments to differ materially from those anticipated.
The forward-looking statements reflect knowledge and information available
at the date of preparation of this Annual Report and the Company undertakes
no obligation to update these forward-looking statements. Nothing in this
Annual Report should be construed as a profit forecast.
Consultancy, Design and Production by Bexon Woodhouse
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Porvair plc
7 Regis Place
Bergen Way
King’s Lynn
Norfolk PE30 2JN
Tel: +44 (0)1553 765500