Aerospace & Industrial
|
Laboratory
|
Metal Melt Quality
PORVAIR PLC
ANNUAL REPORT & ACCOUNTS 2022
Porvair is a specialist filtration, laboratory
and environmental technology group.
Porvair plc Annual Report & Accounts 2022
Strategic report
IFC
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.
Porvair is well positioned to play its part in the global drive
towards a more sustainable future.
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 are consistent earnings per share growth and improvement
in selected Environmental, Social and Governance (“ESG”) metrics.
Summary Group performance in 2022
Porvair plc Annual Report & Accounts 2022
Strategic report
Adjusted profit before tax* (£m)
£19.4m
(2021: £14.8m)
Operating profit (£m)
£19.8m
(2021: £15.8m)
Basic earnings per share (pence)
32.1p
(2021: 26.0p)
Revenue (£m)
£172.6m
(2021: £146.3m)
Adjusted operating profit* (£m)
£20.5m
(2021: £15.9m)
Profit before tax (£m)
£18.7m
(2021: £14.8m)
Net cash (£m)
£18.3m
(2021: £10.2m)
Adjusted basic earnings per share* (pence)
33.2p
(2021: 25.2p)
Total dividend (pence per share)
5.7
p
(2021: 5.3p)
*See notes 2, 3 and 8 for definitions and reconciliations.
Read more in the Chief Executive’s report
on pages: 8 to 15.
Financial summary
h
+18%
h
+23%
h
+32%
h
+25%
h
+29%
h
+26%
h
+31%
01
Strategic report 01 to 51
01
Summary Group performance in 2022
02
Group overview
04
Consistent strategy
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 81
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 82 to 135
Group accounts
82
Independent Auditor’s report to the
members of Porvair plc
88
Consolidated income statement
88
Consolidated statement of
comprehensive income
89
Consolidated balance sheet
90
Consolidated cash flow statement
90
Reconciliation of net cash flow to
movement in net debt
91
Consolidated statement of changes in equity
92
Notes to the consolidated financial statements
Porvair plc Parent Company accounts
126
Parent Company – Balance sheet
127
Parent Company – Profit for the financial year
127
Parent Company – Statement of changes
in equity
128
Parent Company – Notes to the financial
statements
Other information 136 to IBC
136
Shareholder information
136
Financial calendar 2023
IBC
Contact details and advisers
In this report
Group highlights
• Record revenue, operating profit and
earnings per share.
• All three divisions traded well to
deliver top line growth ahead of the
Group’s fifteen-year average of 9%
revenue CAGR.
• Group strategy and devolved
management structure together helped
to overcome challenging supply chain,
inflationary and operating conditions.
• Productivity investments driving
margins.
ESG performance
• Achieved our 2025 carbon intensity
reduction target early;
• Updated our ‘journey to net zero’
planning assumptions;
• Improved our employee engagement
activities and introduced a Voluntary
Quit Rate metric;
• Introduced ESG incentives for all our
senior management; and
• Introduced TCFD reporting.
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
8%
8%
9%
Earnings per
share growth
10%
12%
12%
Adjusted earnings
per share growth
11%
13%
12%
£m
£m
£m
Cash from operations
86.7
152.1
187.8
Investment in acquisitions
and capital expenditure
44.8
78.7
96.4
*Compound annual growth rate.
Porvair’s strategy and purpose has
remained consistent for 18 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.
The Group has three main operating divisions.
50%
Americas
18%
Asia
21%
Continental Europe
10%
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 and the Netherlands and its sales
are global.
55%
USA
29%
UK
13%
Continental Europe
3%
China
38%
Aerospace & Industrial
36%
Laboratory
26%
Metal Melt Quality
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, 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
Revenue by division
% of Group Revenue in 2022
Our Group operations and global presence
Porvair plc Annual Report & Accounts 2022
Strategic report
02
Group overview
Divisional performance
on pages: 10 and 1 1.
Divisional performance
on pages: 12 and 13.
Divisional performance
on pages: 14 and 15.
We have manufacturing operations
in the UK, US, Germany, the
Netherlands and China.
Regional dynamics in 2022
55%
In 2022, 55% (2021: 49%) of Group
manufacturing revenue derived from
the US.
USA
7 sites
UK
4 sites
EUR
4 sites
CHINA
2 sites
We focus on markets which have robust demand drivers;
product regulation or accreditation requirements; and need
specialist design and engineering skills.
Key global growth trends offer opportunities for Porvair
Porvair plc Annual Report & Accounts 2022
Strategic report
03
AEROSPACE
|
MARKET
LABORATORY
|
MARKET
INDUSTRIAL
|
MARKET
METAL MELT QUALITY
|
MARKET
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 aircraft control systems.
• Fuel line and hydraulic filters.
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 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.
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.
1.
TIGHTENING ENVIRONMENTAL
REGULATIONS
2.
GROWTH IN ANALYTICAL SCIENCE
3.
THE NEED FOR CLEAN WATER
4.
CARBON-EFFICIENT TRANSPORTATION
5.
THE REPLACEMENT OF PLASTIC AND
STEEL BY ALUMINIUM
6.
THE DRIVE FOR MANUFACTURING
PROCESS QUALITY AND EFFICIENCY
Porvair plc Annual Report & Accounts 2022
Strategic report
04
We have a consistent strategy and
business model with a long track record of growth,
cash generation and investment.
Strong demand for specialised filtration
in microelectronics in the US
Our US based business serving the
microelectronics manufacturing market
is benefitting form ‘re-shoring’ of
microelectronic component manufacturing
back to the US.
New product introductions for growing
demand in analytical science
The new ‘AQ700’, introduced in 2022
offers high sample volume water testing
at very low detection limits.
We focus on markets where we
see 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 regulations.
• Growth in analytical science.
• The need for clean water.
• Carbon-efficient transportation.
• The replacement of plastic and steel
by aluminium.
• The drive for manufacturing process
quality and efficiency.
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 after
each use.
• Sample preparation filters used in
analytical sciences are replaced
after each use.
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
require process qualification.
• All aviation filters have design
accreditation.
Consistent strategy
Porvair plc Annual Report & Accounts 2022
Strategic report
05
Increasing demand for our products and solutions is driven by key
global growth trends, strong customer relationships, energy transition
and the move towards a more sustainable future.
Recovery in aerospace and the drive
for productivity and efficiency
Investing in productivity during Covid
affected years of lower aerospace sales
has enabled our aerospace operations
to respond quickly and profitably to
market recovery.
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 and China and
made several acquisitions. 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 £86.7 million in cash from
operations and invested £44.8 million
in capital expenditure and acquisitions.
• In 2022 the Group generated £22.8
million in cash from operations and
invested £5.9 million in capital
expenditure and investments.
We are a responsible and
sustainable business.
From clean water analysis to light
weight sustainable metals; from reducing
marine pollution to filtration in energy
and industrial process; Porvair capabilities
help to address key environmental
challenges for our customers.
ESG is at the heart of who we are
and what we do
As a responsible and sustainable
business we are committed to having
a positive impact in the world; creating
long term value for our stakeholders.
We contribute to a more sustainable
future: through our products and
solutions; the way we operate; and
how we look after our employees.
We continue to lighten our own
environmental footprint as we grow.
We establish geographic presence
where end-markets require.
Our geographic presence follows the
markets we serve. In the last twelve
months: 50% of revenue was in the
Americas; 18% in Asia;21% in Continental
Europe; 10% in the UK; and 1% in Africa.
The Group has plants in the US, UK,
Germany, the Netherlands and China.
In the last twelve months: 55% of revenue
was manufactured in the US; 29% in the
UK; 13% 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.
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 per share growth and
selected ESG metrics as set out in the
full ESG report.
Porvair benefits from global growth
trends including tightening environmental
regulations; growth in analytical science;
the need for clean water; carbon-efficient
transportation; the replacement of plastic
and steel by aluminium; and the drive for
manufacturing process quality and efficiency.
These trends have supported a consistent
medium and long-term growth record
and the Board is confident that this
can continue.
2022 was a record year with 13% constant
currency revenue growth and adjusted
profit before tax 31% higher. All three
divisions traded well to deliver top line
growth ahead of the Group’s fifteen-year
average of 9% revenue CAGR. Porvair’s
strategy and devolved management
structure together helped to overcome
challenging supply chain, inflationary and
operating conditions.
Results
Revenue in the year to 30 November
2022 was 18% higher at £172.6 million (2021:
£146.3 million). Operating profit was 25%
higher at £19.8 million (2021: £15.8 million)
and adjusted operating profit was 29%
higher at £20.5 million (2021: £15.9 million).
Basic earnings per share were 32.1 pence
(2021: 26.0 pence) and adjusted earnings
per share were 33.2 pence (2021: 25.2
pence). At 30 November 2022 the Group
had net cash of £18.3 million (2021: £10.2
million) after investing £5.9 million (2021:
£7.2 million) in capital expenditure and
investments.
Trading outlook
As we move into 2023 the Board sees
some reasons for caution in the near-term:
supply chain dislocation, while diminishing,
requires vigilance; inflationary pressures
continue; the wider economic picture is
uncertain and there is a likelihood of
currency headwinds. However, the Group
order book finished the year at record
levels despite clear signs of lead times
returning to normal; the aerospace outlook
is healthier than it has been since 2019; the
petrochemical order book is encouraging;
and recent new product introductions will
support growth. Consistent investment in
productivity over the last five years is
improving operating margins and a strong
balance sheet will support continued
investment in 2023.
Dividends
The Board re-affirms its progressive
dividend policy and recommends a final
dividend of 3.8 pence per share, at a value
of £1.7 million (2021: 3.5 pence per share,
at a value of £1.6 million). The full year
dividend increases by 7.5% to 5.7 pence
per share, a value of £2.6 million (2021: 5.3
pence per share, a value of £2.4 million).
The Company had £36.5 million (2021:
£27.8 million) of distributable reserves at
30 November 2022.
Board changes
The Board comprised a Chair, two
Executive Directors, and two other
Independent Non-Executive Directors
throughout the financial year. Jasi Halai will
resign from the Board on 31 January 2023.
In the three years that she has been an
Independent Non-Executive Director, she
has been a valued member of the Board
and made a very constructive contribution
to the direction, strategy and control of the
business. We thank her and wish her well.
Ami Sharma joined the Board on 1 January
2023 and will become Chair of the Audit
Committee following Jasi’s resignation.
Staff
In many respects, of our various
stakeholders, it is our staff that are the
most crucial. 2022 was not an easy year in
which to work in manufacturing operations
with the macro shocks of inflation and
economic uncertainty combining with
micro complications of supply disruption
and covid-related absence. The staff across
our 17 facilities have coped well and the
Board wishes to salute 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 an employee engagement
framework set out by the Board. The Board
is very grateful for the hard work, enthusiasm
and dedication of all our staff.
Porvair plc Annual Report & Accounts 2022
Strategic report
06
Chair’s statement
2022 was a record year with
13% constant currency revenue
growth and adjusted profit
before tax 31% higher. All three
divisions traded well to deliver
top line growth ahead of the
Group’s fifteen-year average
of 9% revenue CAGR.
John Nicholas,
Chair
Net cash
£18.3m
Net cash was £18.3 million (2021: £10.2
million) after investing £5.9 million (2021:
£7.2 million) in capital expenditure and
investments.
Dividend
5.7p
The Dividend increased to 5.7 pence
per share (2021: 5.3 pence)
.
Our focus on core markets, productivity, governance
and ESG has delivered a strong set of results.
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
2022. In 2022 the Group strengthened its
internal audit processes and procedures;
improved its approach to the promotion of
talent and succession planning; and further
developed its employee engagement
processes.
Key Board decisions
The principal decisions taken by the
Board in 2022 were those of a strategic
nature that are significant to any of our key
stakeholder groups. In 2022 these were:
refinements to the Group’s method of
allocating capital to new investments;
the decision not to proceed with a certain
acquisition; the decision to pay the interim
dividend and recommend the final dividend
for 2022; consideration of the appropriate
pay rates and bonuses in a period of high
inflation; and approval of the Porvair
strategic plan for 2023 to 2026. These
are described in full on page 50.
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
27 January 2023
Porvair plc Annual Report & Accounts 2022
Strategic report
07
Progressive dividend policy
3.8p
The Board re-affirms its progressive
dividend policy and recommends a final
dividend of 3.8 pence per share.
Stakeholder engagement and ESG
Effective engagement with stakeholders
and transparent reporting promotes the
long term sustainability and success
of the Group. Strong and effective
governance and ethical practice are
essential considerations for Porvair as we
develop our sustainability commitments
and progress towards our targets.
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.
Read more about Stakeholder engagement
and the Board’s decision making within our s172
Statement on pages: 48 to 50.
Read more about our compliance in our
Governance section on pages: 52 to 81.
Porvair plc Annual Report & Accounts 2022
Strategic report
08
Chief Executive’s report
Operating review
2022 started with supply side dislocation
and goods inflation exacerbated by
energy shocks and distorted by currency
fluctuation. The year finished with supply
side issues diminishing, albeit slowly, and
wage inflation gathering pace. It was a year
when close operational focus and attention
to margins were essential but could not be
allowed to disrupt the delivery of longer-
term investments in productivity, product
development and people.
The Group navigated challenging
conditions satisfactorily, achieving reported
revenue growth of 18%, although this is
flattered by foreign exchange. Constant
currency revenue growth was 13%. Revenue
was driven by robust orderbooks throughout
the year and price increases passed on
whenever goods inflation could not be
avoided. Record profit and a focus on cash
meant the year finished with £18.3 million
of cash on the balance sheet.
Porvair’s devolved management structure
is helpful in volatile conditions, enabling
key cost, price and inventory decisions to
be made close to the market. Operational
objectives shared across all general
managers were around cash generation,
margin enhancement and active employee
engagement; with almost all targets set
delivered or exceeded. Details of our
employee engagement and environmental
programmes are published in our ESG
report on pages 28 to 47.
Financial results
2022
2021
Growth
£m
£m
%
Revenue
172.6
146.3
18
Operating profit
19.8
15.8
25
Adjusted operating profit*
20.5
15.9
29
Profit before tax
18.7
14.8
26
Adjusted profit before tax*
19.4
14.8
31
Pence
Pence
Earnings per share
32.1
26.0
23
Adjusted earnings
per share*
33.2
25.2
32
£m
£m
Cash generated from
operations
22.8
18.6
Net cash (excluding
lease liabilities)
18.3
10.2
*See notes 2, 3 and 8 for definitions and reconciliations.
Revenue was 18% higher. Profit before tax
increased by 26%. Adjusted profit before
tax was up 31% and adjusted earnings per
share up 32%.
It was a year of unusually strong currency
tail-winds. At constant currency, revenue
growth was 13% (see note 2). The direct
effects of foreign exchange on profit are
harder to measure. We estimate that adjusted
operating profit at constant currency would
have been around £19.0 million and adjusted
earnings per share around 31 pence.
The Group’s record for growth, cash
generation and investment is:
5 years
10 years
15 years
CAGR*
CAGR*
CAGR*
Revenue growth
8%
8%
9%
Earnings per share growth
10%
12%
12%
Adjusted earnings per
share growth
11%
13%
12%
£m
£m
£m
Cash from operations
86.7
152.1
187.8
Investment in acquisitions
and capital expenditure
44.8
78.7
96.4
*Compound annual growth rate.
Porvair’s strategy and purpose has
remained consistent for 18 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.
Strategic statement and business model
Porvair’s strategic purpose is the
development of specialist filtration, laboratory
and environmental technology businesses
measures of success include consistent
earnings per share growth and selected ESG
metrics as set out in the full ESG report.
The Group is positioned to benefit from
global trends: tightening environmental
regulations; growth in analytical science;
the need for clean water; 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 or engineering skills
are required;
•
Product use and replacement is mandated
by regulation, quality accreditation or a
maintenance cycle; and
Our strong operating
performance has been driven
by increased customer demand
and market recovery. It has
been delivered against the
backdrop of challenging global
headwinds.
Ben Stocks,
Chief Executive
Revenue
£172.6m
Revenue up 18% to £172.6 million
(2021: £146.3 million).
Cash generated from operations
£22.8m
(2021: £18.6 million)
.
Adjusted profit before tax*
£19.4m
Adjusted profit before tax* up 31% to
£19.4 million (2021: £14.8 million)
.
Read our full ESG report on pages: 28 to 47.
Read more about divisional performance on
pages: 10 to 15.
Porvair plc Annual Report & Accounts 2022
Strategic report
09
•
Products are typically designed into a
system that will have a long life-cycle and
must perform to a given specification.
Orders are won by offering the best technical
solutions at an acceptable commercial
cost. Technical expertise is necessary in
all markets served. New products are
often adaptations of existing designs with
attributes validated in our own test and
measurement laboratories. Experience
in specific markets and applications is
valuable in building customer confidence.
Domain knowledge is important, as is
deciding where to direct resources.
This leads the Group to:
1.
Focus on markets with long term
growth potential;
2.
Look for applications where product use
is mandated and replacement demand
is regular;
3.
Make new product development a core
business activity;
4.
Establish geographic presence where
end markets require; 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 for 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 2022.
In 2020 the Group set a target to achieve
a 10% reduction in carbon intensity ratio by
2025. As set out in the ESG report on page
38 and 39, this was exceeded in 2022. The
Board has reset the target to achieve a further
10% reduction from the 2022 baseline.
Strategic priorities to drive long term growth:
•
Allocate capital to higher growth segments; efficiency enhancements; and
capacity increases.
•
Place more emphasis on skills development, talent and training in a devolved
management structure.
•
Support new product development.
•
Acquire suitable bolt-on assets as appropriate.
•
Meet our ESG targets.
AEROSPACE & INDUSTRIAL
Divisional performance
Machined parts provide better quality and lighter
weight than the previously specified cast parts.
Aerospace filtration requires complex component
manufacturing to the tightest tolerances and
highest repeatable quality.
Main operating companies
• Porvair Filtration Group
• Royal Dahlman
Principal markets
• Aerospace
• General Industrial
• Energy
• Petrochemical
Porvair plc Annual Report & Accounts 2022
Strategic report
10
Chief Executive’s report
continued
Tightening environmental regulations and the drive for manufacturing
process quality and efficiency
Porvair’s industrial and aerospace filters reduce emissions, improve process quality and cut waste.
Performance in 2022
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;
and quality accreditations.
Revenue grew 16%, or 13% at constant
currency (note 2), with aerospace, nuclear
and microelectronics all well ahead of
the prior year. It was a slower year for
petrochemical work but orders picked up in
the final quarter and the outlook is brighter,
particularly for emissions control work in
India. For the second year there were
no gasification sales with current filters
performing better than expected in situ.
Aerospace revenue was up 19% and
the order book for 2023 is healthy.
Operating profit benefitted from both
volume and pricing effects and were further
improved by productivity investments
made in covid-affected prior years. Adjusted
operating profit margin at 11.1% is returning
to pre-pandemic levels. Investments
continued through the year to improve
quality, capacity and productivity.
It was a good year for recently introduced
products. While relatively modest in
revenue terms, unusual engineering
challenges were successfully undertaken
for both the SpaceX and Blue Origin space
programmes; the US DoE nuclear waste
remediation programme at Hanford River;
and the International Thermonuclear
Experimental Reactor in France.
Performance summary
•
Revenue up 16%
•
Aerospace revenue up 19%
•
Aerospace, nuclear and
microelectronics up
•
Slower year for petrochemicals
Adjusted operating profit* (£m)
2022 Revenue (£m)
8
6
4
2
0
2020
£7.2m
(2021: £4.4m)
£64.7m
(2021: £55.8m)
2021
70
60
50
40
30
20
10
0
2020
6.3
2022
4.4
7.2
62.0
2021
55.8
2022
64.7
*See notes 2 and 3 for definitions and reconciliations.
The Aerospace & Industrial
division designs and
manufactures a wide range
of specialist filtration
products, demand for which
is driven by customers
seeking better engineered,
cleaner, safer or more
efficient operations.
Revenue growth
+16%
Revenue grew 16%, or 13% at constant
currency (note 2), with aerospace, nuclear
and microelectronics all well ahead of the prior
year. It was a slower year for petrochemical
work but orders picked up in the final quarter
and the outlook is brighter, particularly for
emissions control work in India.
2022
2021
Growth
£m
£m
%
Revenue
64.7
55.8
16
Operating profit
6.8
3.9
74
Adjusted operating profit*
7.2
4.4
64
*See notes 2 and 3 for definitions and reconciliations.
Porvair plc Annual Report & Accounts 2022
Strategic report
11
Financial performance 2022
LABORATORY
Divisional performance
Main operating companies
• Seal Analytical
• Porvair Sciences
• JG Finneran (“JGF”)
• Kbiosystems (“Kbio”)
Principal markets
• Environmental
• Sample preparation
• Chromatography
• Laboratory instruments
Porvair plc Annual Report & Accounts 2022
Strategic report
12
Chief Executive’s report
continued
Growth in analytical science and the need for clean water
Porvair combines analytical instrument manufacturing, robotics and laboratory
consumables to address these markets.
Demand for cleaner water drives growth in water
analysis testing. Product innovation addresses
our customers’ demands for higher throughput
instruments with lower detection limits.
Performance in 2022
The Laboratory division has two operating
businesses: Porvair Sciences (including
JG Finneran and Kbiosystems) and Seal
Analytical.
•
Porvair Sciences manufactures laboratory
filters, small instruments and associated
consumables. Differentiation is achieved
through proprietary manufacturing
capabilities and filtration media.
•
Seal Analytical is a leading supplier
of instruments and consumables for
environmental laboratories, for which
demand is driven by water quality
regulations. Differentiation is achieved
through consistent new product
development.
Revenue grew 18%, or 14% at constant
currency (note 2), with both Seal Analytical
and the Life Sciences consumables
segments achieving record sales. Kbio
performed well, returning to more normal
sales patterns after a covid-related boost
in the prior year and helped by increased
sales into the US through JG Finneran
sales channels.
Operating profit was up 7%, or 5% in
constant currency, with margins softening
as flattering covid-related work settled
back and a more normal product mix
returned. Adjusted operating profit
margin at 16.4% is at satisfactory levels.
Investment continued through the year in
tooling and capacity expansion for sample
preparation products.
The recently introduced AQ700 water
analysis instrument exceeded expectations
in the year and will be a key component in
Seal’s future growth. Based on proprietary
component design this is a high-throughput,
low detection-limit instrument ideally suited
to laboratories where automation of process
is becoming essential.
Performance summary
•
Revenue up 18%
•
Adjusted operating profit up 7%
Adjusted operating profit* (£m)
2022 Revenue (£m)
£10.3m
(2021: £9.6m)
£62.7m
(2021: £53.2m)
2020
2021
2022
2020
2021
2022
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.
Revenue growth
+18%
Revenue grew 18%, or 14% at constant
currency (note 2), with both Seal Analytical
and the Life Sciences consumables
segments achieving record sales. Kbio
performed well, returning to more normal
sales patterns after a covid-related boost
in the prior year and helped by increased
sales into the US through JG Finneran
sales channels.
2022
2021
Growth
£m
£m
%
Revenue
62.7
53.2
18
Operating profit
10.0
9.6
4
Adjusted operating profit*
10.3
9.6
7
*See notes 2 and 3 for definitions and reconciliations.
Porvair plc Annual Report & Accounts 2022
Strategic report
13
12
10
8
6
4
2
0
70
60
50
40
30
20
10
0
9.6
6.7
10.3
40.1
53.2
62.7
Financial performance 2022
*See notes 2 and 3 for definitions and reconciliations.
METAL MELT QUALITY
Divisional performance
Our patented 3D printed ceramic filters are critical
to the manufacture of turbine blades.
Main operating companies
• Selee Corporation
• Selee China
Principal markets
• Global Aluminium
• US Foundry
• Superalloys
Porvair plc Annual Report & Accounts 2022
Strategic report
14
Chief Executive’s report
continued
Carbon-efficient transportation and the replacement of plastic and steel by aluminium
Aluminium is 100% recyclable. It is replacing steel in automotive applications
and plastic in beverage packaging.
Performance in 2022
The Metal Melt Quality division manufactures
filters for molten aluminium, ductile iron and
nickel-cobalt alloys. It has a well-differentiated
product range based on patented products
and a promising new product pipeline.
Revenue was at record levels, growing
at 21%, or 1 1% at constant currency (note 2).
Post-covid recovery in aerospace and
foundry-related markets helped, as did
further progress in the demand for metal
grades suitable for electric and hybrid
vehicles; and the switch from plastic to
recyclable aluminium beverage packaging.
Over 90 billion cans were made from
aluminium filtered by Porvair in 2022.
Operating profit was up 12%, or 6% in
constant currency. Adjusted margins were
ahead of target at 12.6%, marginally less
than the prior year which was flattered by
lower than normal selling and other costs.
Performance summary
• Revenue at record levels up 21%
• Adjusted operating profit up 12%
Adjusted operating profit* (£m)
2022 Revenue (£m)
£5.7m
(2021: £5.1m)
£45.2m
(2021: £37.4m)
2020
2021
2022
2020
2021
2022
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.
Revenue growth
+21%
Revenue was at record levels, growing
at 21%, or 11% at constant currency (note 2).
Post-covid recovery in aerospace and
foundry-related markets helped, as did
further progress in the demand for metal
grades suitable for electric and hybrid
vehicles; and the switch from plastic to
recyclable aluminium beverage packaging.
Over 90 billion cans were made from
aluminium filtered by Porvair in 2022.
2022
2021
Growth
£m
£m
%
Revenue
45.2
37.4
21
Operating profit
5.7
5.7
–
Adjusted operating profit*
5.7
5.1
12
*See notes 2 and 3 for definitions and reconciliations.
Porvair plc Annual Report & Accounts 2022
Strategic report
15
6
4
2
0
50
40
30
20
10
0
2.8
5.1
5.7
32.9
37.4
45.2
Financial performance 2022
*See notes 2 and 3 for definitions and reconciliations.
Group results
2022
2021
Growth
£m
£m
%
Revenue
172.6
146.3
18
Operating profit
19.8
15.8
25
Profit before tax
18.7
14.8
26
Profit after tax
14.7
11.9
24
Revenue was 18% higher on a reported
currency basis and 13% higher at constant
currency (see note 2). Operating profit was
£19.8 million (2021: £15.8 million) and profit
before tax was £18.7 million (2021: £14.8
million). Profit after tax was £14.7 million
(2021: £11.9 million).
Alternative performance
measures – profit
2022
2021
Growth
£m
£m
%
Adjusted operating profit
20.5
15.9
29
Adjusted profit before tax
19.4
14.8
31
Adjusted profit after tax
15.3
11.6
32
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 adjusted item provides a
more consistent assessment of the Group’s
trading. Adjusting items comprise a £0.7
million charge (2021: a net £0.1 million
charge) for the amortisation of acquired
intangible assets. The details of these
adjustments are set out in 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:
2022
2021
Average rate for translating
the results:
US $ denominated
operations
$1.25:£
$1.37:£
Euro denominated
operations
€1.18:£
€1.16:£
Closing rate for translating
the balance sheet:
US $ denominated
operations
$1.19:£
$1.32:£
Euro denominated
operations
€1.16:£
€1.18:£
The movement in average rates used for
translating US dollar and Euro results into
Sterling has resulted in a net favourable
revenue variance year-on-year of £8.2
million, between reported and constant
currency (note 2 explains how constant
currency performance is determined).
During the year, the Group sold US$25.0
million (2021: US$16.5 million) at a net rate
of US$1.29:£1 (2021: US$1.36:£1) and €2.6
million (2021: €10.5 million) at a net rate
of €1.19:£1 (2021: €1.14:£1). At 30 November
2022, the Group had US$13.0 million (2021:
US$1.0 million) and €0.4 million (2021:
€0.3 million) of outstanding forward foreign
exchange contracts; hedge accounting
has not been applied to these contracts.
Finance costs
Net interest payable comprises bank
borrowing costs, interest on lease liabilities,
interest on the Group’s pension deficit and
the cost of unwinding discounts on
provisions and other payables. Interest in
the year remained flat at £1.1 million (2021:
£1.1 million). Interest cover was 18 times
(2021: 15 times). Interest cover on bank
finance costs was 57 times (2021: 51 times).
*See notes 2 and 3 for definitions and reconciliations.
Porvair plc Annual Report & Accounts 2022
Strategic report
16
Finance Director’s review
We focus on maintaining
a strong balance sheet
and good margins to drive
cash generation for future
investments and growth.
James Mills,
Group Finance Director
Adjusted operating profit*
£20.5m
Adjusted operating profit* up 29%
to £20.5 million (2021: £15.9 million).
Cash generated from operations
£22.8m
Cash generated from operations was
£22.8 million (2021: £18.6 million)
.
Capital expenditure and investments
£5.9m
£5.9 million invested in capital
expenditure and investments
(2021: £7.2 million).
Tax
The total Group tax charge for the year was
£4.0 million (2021: £2.8 million), including
the tax effect of adjusting items which are
set out in note 2. The adjusted tax charge
was £4.2 million (2021: £3.2 million), with the
effective rate of income tax on adjusted
profit before tax being 21% (2021: 22%).
The Group effective tax rate was impacted
by overseas profits, which attract higher tax
rates than the current 19% in the UK, noting
the enacted increase in UK Corporation
Tax to 25% from April 2023.
The total tax charge comprises current
tax of £3.4 million (2021: £2.7 million)
and deferred tax of £0.6 million (2021:
£0.1 million).
The Group has current tax provisions
of £0.3 million (2021: £0.9 million), which
includes £1.1 million (2021: £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 £1.0 million (2021: £1.8 million) and a
deferred tax liability of £2.8 million (2021:
£2.4 million). The deferred tax asset relates
principally to the retirement benefit
obligations and share-based payments.
The deferred tax liability relates to
accelerated capital allowances, acquired
intangible assets arising on consolidation
and other timing differences.
Total equity and distributable reserves
Total equity at 30 November 2022 was
£131.1 million (2021: £108.9 million), an
increase of 20% over the prior year.
The net increase in total equity includes
profit after tax of £14.7 million (2021: £11.9
million), a net of tax actuarial gain of £1.3
million (2021: £1.6 million), together with a
£7.8 million exchange gain (2021: £nil) on
the retranslation of foreign subsidiaries.
The Company had £36.5 million (2021:
£27.8 million) of distributable reserves at
30 November 2022. The Company’s
distributable reserves increased in the
year from dividends received from Group
companies, together with an actuarial gain,
offset by head office costs and dividends
paid to shareholders.
Turnover (£m)
£172.6m
180
160
140
120
100
80
60
40
20
0
2018
2019
128.8
2020
144.9
135.0
2021
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
146.3
2022
172.6
Adjusted profit before tax* (£m)
£19.4m
Cash generated from operations (£m)
£22.8m
Dividend (pence per share)
5.7p
20
15
10
5
0
13.5
14.8
12.6
14.8
19.4
*See notes 2 and 3 for definitions and reconciliations.
Porvair plc Annual Report & Accounts 2022
Strategic report
17
Cash generated from operations
£22.8m
Generating free cash flow is key to the
Group’s business model. Operating cash
flow of £22.8 million was generated in the
year (2021: £18.6 million), with net working
capital increasing by £2.7 million (2021:
£0.8 million).
4.6
4.9
5.0
5.3
5.7
6
5
4
3
2
1
0
25
20
15
10
5
0
15.3
16.8
13.2
18.6
22.8
collections throughout the year. Working
capital management supported the
investment in certain inventory items, given
the wide-spread supply chain dislocation
and need to sure up security of supply.
Inventories increased by £4.9 million (2021:
£0.5 million) and payables and provisions
increased by £4.2 million (2021: decrease
of £0.5 million).
Provisions and contingent liabilities
The Group has £4.0 million (2021: £4.7
million) of provisions for dilapidations and
performance warranties. £0.4 million of
warranty provisions have been created in
relation to sales made in the year. £1.1 million
of warranty provisions have been released
in the year, following the latest estimate of
the expected costs to be incurred.
At 30 November 2022, the Group had
the following advanced payment bonds
(relating to monies received in advance on
contracts) and performance bonds issued
to customers in US dollars and Euros:
$m
€m
Advanced payment bonds
–
0.7
Performance bonds
1.0
0.3
At 30 November 2022
1.0
1.0
$m
€m
Advanced payment bonds
–
0.3
Performance bonds
2.5
0.8
At 30 November 2021
2.5
1.1
The uncalled performance bonds are
expected to be called or released no later
than December 2024.
Capital expenditure
Capital expenditure on property, plant
and equipment was £4.9 million in the year
(2021: £3.2 million), as the Group stepped
up investment in capital projects with
a particular emphasis on automation
and productivity.
Acquisitions
On 25 February 2021, the Group purchased
100% of the share capital of Kbio. Contingent
consideration paid in the 2022 year was
£1.0 million. A further and final £1.0 million
of consideration is contingent on Kbio
meeting a profit target for the year ending
31 March 2023. This amount discounted is
accrued within ‘Trade and other payables’
at 30 November 2022.
Retirement benefit obligations
Retirement benefit obligations measured in
accordance with IAS 19 Employee Benefits
were £9.8 million (2021: £12.6 million). The
Group supports its defined benefit pension
scheme in the UK (“The Plan”), which is
closed to new members, and provides
access to defined contribution schemes
for its other employees. The Plan’s liabilities
decreased in the year to £34.1 million
(2021: £49.6 million). The Plan’s assets also
decreased in the year to £24.5 million
(2021: £37.0 million). Following a change in
financial assumptions, including an increase
Cash flow
The table below summarises the key
elements of the cash flow for the year:
2022
2021
£m
£m
Operating cash flow before
working capital
26.9
21.0
Working capital movement
(2.7)
(0.8)
Post-employment benefits
(net cash movement)
(1.4)
(1.6)
Cash generated from operations
22.8
18.6
Interest
(0.4)
(0.3)
Tax
(4.1)
(2.2)
Capital expenditure
(4.9)
(3.2)
13.4
12.9
Acquisitions
(1.0)
(4.0)
Share issue proceeds
0.5
0.1
Purchase of Employee Benefit
Trust shares
(0.7)
(0.7)
Decrease in borrowings
(5.0)
(3.7)
Dividends
(2.5)
(2.3)
Repayment of lease liabilities
(2.5)
(2.3)
Increase in cash
2.2
–
2022
2021
£m
£m
Net debt reconciliation
Net debt at 1 December
(2.0)
(8.7)
Increase in cash
2.2
–
Decrease in borrowings
5.0
3.7
Decrease in lease liabilities
1.2
1.1
Paycheck Protection Program
loan waiver
–
1.4
Exchange gains
0.4
0.5
Net cash/(debt) at 30 November
6.8
(2.0)
Net cash
18.3
10.2
Lease liabilities
(11.5)
(12.2)
Net cash/(debt) at 30 November
6.8
(2.0)
Generating free cash flow is key to the
Group’s business model. Operating cash
flow of £22.8 million was generated in the
year (2021: £18.6 million), with net working
capital increasing by £2.7 million (2021:
£0.8 million).
Receivables increased by
£2.0 million (2021: decrease £0.2 million) as
a result of the revenue growth, with strong
Capital expenditure
£4.9m
Capital expenditure on property, plant
and equipment was £4.9 million in the
year (2021: £3.2 million), as the Group
stepped up investment in capital projects
with a particular emphasis on automation
and productivity.
Porvair plc Annual Report & Accounts 2022
Strategic report
18
Finance Director’s review
continued
in the discount rate, together with a loss
on assets, a net of tax actuarial gain of
£1.3 million (2021: gain of £1.6 million) was
recognised within the statement of
comprehensive income.
Cash contributions paid to The Plan were
£2.1 million (2021: £2.3 million), which
included a deficit recovery payment of
£1.6 million (2021: £1.6 million). The triennial
actuarial valuation was completed in the
year based on the Plan’s position at 31
March 2021. Based on the valuation, the
Group has agreed to increase the annual
deficit recovery payment from £1.6 million
to £2.1 million, effective December 2022.
Borrowings and bank finance
At 30 November 2022, the Group had cash
balances of £18.3 million (2021: £15.4 million)
and borrowings of £nil (2021: £5.2 million);
with net cash (excluding lease liabilities) of
£18.3 million (2021: £10.2 million).
At 30 November 2022, the Group had
€27.7 million/£23.9 million (2021: €21.5
million/£18.3 million) of unused credit
facilities and an unutilised £2.5 million
(2021: £2.5 million) overdraft facility.
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
27 January 2023
Principal risks and uncertainties on pages: 22 to 25.
Viability and going concern on pages: 26 and 27.
Remuneration report on pages: 65 to 81.
ESG report on pages: 28 to 47.
Porvair plc Annual Report & Accounts 2022
Strategic report
19
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.
REVENUE GROWTH
REVENUE GROWTH AT
CONSTANT CURRENCY
Definition
Revenue growth captures our 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 2022
The performance of the Group is explained
in full in the Chief Executive’s report and
the Finance Director’s review.
Total reported revenue growth in the
year includes a net year-on-year foreign
exchange retranslation benefit, notably
from the Group’s US Dollar denominated
operations. At constant currency, revenue
growth within Aerospace & Industrial was
13% (2021: 8% reduction), Laboratory 14%
(2021: 38%), and Metal Melt Quality 11%
(2021: 21%).
Performance
18%
Performance
13%
2021
8%
2022
18%
2018
2018
12%
2019
10%
(7)%
2019
2020
(7)%
2020
1 1%
13%
1
2
3
4
5
2021
2018
9%
2019
9%
2020
(15)%
2021
17%
2022
31%
Strategy and business model on pages: 4 and 5.
Principal risks and uncertainties on pages: 22 to 25.
Remuneration report on pages: 65 to 81.
ESG report on pages: 28 to 47.
2018
13%
2019
2021
7%
41%
2022
23%
2020
(22)%
2018
11%
2019
10%
2020
(15)%
2021
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.
12%
2022
13%
17%
2022
32%
ADJUSTED OPERATING MARGIN
Definition
Operating margins, excluding adjusting
items (see note 2), demonstrate the
Group’s ability to turn revenue into profits.
Performance in 2022
The Group adjusted operating margin
increased to 11.9% (2021: 10.9%). Within the
divisions, adjusted operating margins were
11.1% in Aerospace & Industrial (2021: 7.9%),
16.5% in Laboratory (2021: 18.1%), and 12.6%
in Metal Melt Quality (2021: 13.6%).
Performance
12%
1
2
3
4
5
1
2
3
1
2
3
1
2
3
1
2
3
Porvair plc Annual Report & Accounts 2022
Strategic report
20
2018
2019
2020
2021
2022
11%
11%
11%
10%
12%
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 2022
The performance is described in full in the
Chief Executive’s report and the Finance
Director’s review. Revenue growth of 18%
has leveraged the Group cost base to
deliver 31% growth at an adjusted PBT level.
Performance
31%
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 2022
Basic EPS growth reflects the growth in
PBT, with a 21% effective rate of corporation
tax (2021: 19%).
Performance
23%
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 2022
Adjusted basic EPS of 33.2 pence (2021:
25.2 pence) has grown broadly in line with
adjusted PBT.
Performance
32%
Key performance indicators
FINANCIAL KPIs
LOST TIME ACCIDENTS PER 100
EMPLOYEES
New Non-financial KPI
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 2022
The Voluntary Quit Rate has fallen across
the Group as a whole as a result of greater
focus on employee wellbeing. The
Voluntary Quit Rate varies from plant to
plant with several factors having an effect
including the nature of the work at each
plant and the local economic conditions.
12.2%
The Group Voluntary Quit Rate was 12.2%
(2021: 15.4%).
7.1%
The median plant had a Voluntary Quit Rate
of 7.1% (2021: 8.3%).
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
Porvair plc Annual Report & Accounts 2022
Strategic report
21
CASH GENERATED FROM OPERATIONS
LESS INTEREST
Definition
Cash generated from operations less
interest gives a measure of the cash
generating capabilities of underlying
operations.
Performance in 2022
The Group’s cash performance was strong
driven by a continued focus on working
capital management.
Performance
£22.4m
ADJUSTED POST TAX RETURN ON
CAPITAL EMPLOYED
(See note 2 for definitions)
Definition
Adjusted post tax return on capital
employed gives a measure of financial
return from all of the invested capital in
the business. A return higher than the
Group’s weighted average cost of capital
is satisfactory.
Performance in 2022
The Group’s return on capital employed
of 15% (2021: 13%) increased over the
prior year as a result of the continued
improvement in Group financial performance.
Performance
15%
ADJUSTED POST TAX RETURN ON
OPERATING CAPITAL
(See note 2 for definitions)
Definition
Adjusted post tax return on operating
capital employed gives a measure of the
Group’s ability to make financial returns
from the fixed assets and working capital
employed in its operations. It ignores
goodwill arising on acquisitions and the
Group’s retirement benefit obligations.
Performance in 2022
The Group’s return on operating capital of
36% (2021: 31%) increased over prior year
as a result of the continued improvement
in Group financial performance.
Performance
36%
43%
36%
28%
31%
36%
DAYS LOST TO ACCIDENTS PER 100
EMPLOYEES
Performance
0.10
GREENHOUSE GAS TOTAL INTENSITY
RATIO
Definition
The total intensity ratio is measured in
kilogrammes of CO
2
per pound Sterling
of revenue.
Performance in 2022
Greenhouse gas emissions were 1% higher
in 2021, but revenue was 18% higher resulting
in a 15% reduction in the intensity ratio.
Performance
0.108
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 2022
Although there was only 1 lost time accident
in 2022, it resulted in 61 days off work.
Performance
6.1
2018
£15.0m
2019
£16.4m
2020
£12.9m
2021
£18.3m
2022
2018
2019
2020
2021
2022
£22.4m
2018
15%
2019
14%
2020
12%
2021
13%
2022
15%
2018
1.40
2019
0.51
2020
1.30
2021
0.43
2022
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
0.10
35
13
2
1.6
0.161
0.135
0.139
0.127
0.108
NON-FINANCIAL KPIs
6.1
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
–
Existing market risk – Covid-19 and supply chain disruption
ER 2
– Regulation risk – Tariffs
ER 3
– Environmental and climate-related risks
ER 4
– Input, cost and production risk
Risk assessment review
Risk assessment
Review
Group Executive
Audit Committee
Board
Identify
Review
Assess
Mitigating actions
Mitigating 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
Porvair plc Annual Report & Accounts 2022
Strategic report
22
Principal risks and uncertainties
EMERGING RISKS
ER 1 – EXISTING MARKET RISK – COVID-19
AND SUPPLY CHAIN DISRUPTION
Covid-19 has affected market demand, supply
chains and operating disciplines.
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
Porvair plc Annual Report & Accounts 2022
Strategic report
23
ER 3 – ENVIRONMENTAL AND
CLIMATE-RELATED RISKS
There are risks associated with both increased
environmental awareness and changing
emissions standards.
Mitigation
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 set out its latest review of how a
move to Net Zero might affect Group operations
in its 2022 ESG report, where both risks and
opportunities were outlined. As part of its risk
management process, management reviews
inputs and outputs to assess and reduce
environmental footprint.
Change
ER 4 – 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.
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.
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 operates 17 production facilities,
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 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.
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 and best
practice shared across the divisions.
Change
Porvair plc Annual Report & Accounts 2022
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 their respective 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 2022
Strategic report
25
FINANCIAL RISKS
G – FINANCING AND LIQUIDITY RISK
The Group uses borrowings to finance its
operations as required.
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, the Group manages
this trading exposure by periodic sales of US
dollars and Euros. It does not apply hedge
accounting to these transactions. Hedge
accounting is only applied to currency sales,
which match certain flows of foreign currencies
arising on large individual customer contracts.
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 2023
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 2022,
the Board considered the prospects of
the Group over the one and three year
periods to 30 November 2023 and 2025,
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 4
and 5. 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 2022
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
the 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:
•
An accelerated decline in US foundry
revenue as the Automotive sector
accelerates its Net Zero activities (principal
risks; environmental and climate-related;
input, cost and production; and existing
market);
•
A 15% reduction in total Aerospace &
Industrial revenue, with a return to a level
of performance consistent with that of
FY2021, being the year following the
Covid-19 outbreak (principal risks: Covid-19
and supply chain disruption; input, cost
and production; and existing market);
•
A forced plant shutdown requiring lengthy
remedial work over FY2023 and FY2024
(principal risk: facilities); and
•
An economic downturn impacting Metal
Melt Quality, with certain product lines
suffering a 30% 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 2022, the Group would not
need to utilise its secured financing facilities
and 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 2022
Strategic report
27
Porvair plc Annual Report & Accounts 2022
Strategic report
28
ESG report
BUILDING A
RESPONSIBLE
BUSINESS
Porvair is well positioned to
play its part in the drive towards
a more sustainable future.
We aim to develop our
businesses for the benefit
of all our stakeholders.
ESG report 2022
Information included in this report covers
our activities in 2022 both at Group level
and within each of our operations. Our
2022 report is structured in line with our
ESG framework and provides an update
on our progress in the year.
ENABLING A MORE
SUSTAINABLE
FUTURE
As a responsible and sustainable business
we are committed to having a positive
impact in the world; creating long term
value for our stakeholders. We contribute
to a more sustainable future: through our
products and solutions; the way we operate;
and how we look after our employees. We
continue to lighten our own environmental
footprint as we grow.
In the ‘decade of delivery’ for the UN
Sustainable Development Goals (2015),
we note through this report ten goals that
are most relevant to Porvair’s business
and where we believe we can make the
most meaningful contribution.
Contributing to UN Sustainable Development Goals (“SDGs”)
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 page
46 and 47, 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.
Porvair plc Annual Report & Accounts 2022
Strategic report
29
One of the lessons learned through the
pandemic was how critical employee
and community involvement is for our 17
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 pages 40 to 45. Senior staff annual
bonuses are now linked to employee
engagement improvement.
What ESG means at Porvair
AN ESG FRAMEWORK
TO CREATE SHARED
VALUE
What metrics we use to measure
our performance
ESG metrics
• Carbon intensity.
• Lost time accidents.
• Employee engagement.
• Senior staff gender balance.
• Employee voluntary quit rate.
Our approach to ESG reporting
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 has adopted TCFD
Recommendations in 2022, 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.
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
30%
We are committed to developing a diverse
and inclusive workplace. 30% of the Group’s
permanent workforce are female.
ENVIRONMENTAL
SOCIAL
GOVERNANCE
ESG is at the heart of who we are and what we do. Our annual ESG and Financial
reports are published simultaneously and carry equal weight. Principal measures
of success at Porvair, on which all management incentives are based, are consistent
earnings per share growth and improvement in selected ESG metrics.
Ben Stocks,
Group Chief Executive
Porvair products are used to curtail
emissions, cut waste, reduce pollution or
improve process efficiency. The Group
has followed an environmental technology
strategy since 2004. Over the last 15 years
the Group has delivered compound annual
growth of 12% in earnings and 9% in revenues.
As the company grows and evolves, climate
change and its impact on the environment
are at the heart of our strategic thinking –
as shown on pages 33 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 page
39, we have reduced our carbon intensity by
22% between 2020 and 2022, exceeding
our goal of cutting our carbon intensity by
10% between 2020 and 2025. We have
re-set our target to achieve a further 10%
reduction by 2025 from the 2022 base.
Carbon intensity reduction
22%
We have reduced our carbon intensity by 22%
between 2020 and 2022 exceeding our goal
of cutting our carbon intensity by 10% between
2020 and 2025. We have re-set our target to
achieve a further 10% reduction by 2025 from
the 2022 base.
Porvair plc Annual Report & Accounts 2022
Strategic report
30
ESG report
continued
ENVIRONMENTAL
In our own operations we are
reducing our carbon intensity,
resource usage and waste
streams to make incremental
reductions in environmental
impact.
From clean water analysis
to light weight sustainable
metals; from reducing marine
pollution to filtration in energy
and industrial process; Porvair
capabilities help to address
key environmental challenges
for our customers.
GHG emissions
(total gross emissions)
18,660
(tCO
2
)
71% of carbon emissions arise in the
Metal Melt Quality division.
Carbon intensity
0.108
(kCO
2
/£)
Carbon intensity is 15% lower than 2021
and 22% 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 0.108.
MEASURING PERFORMANCE IN 2022:
Carbon Intensity Ratio
The Group aims to reduce its total carbon intensity ratio over time and has exceeded
its goal to reduce carbon intensity by 10% between 2020 and 2025. It has re-set this
goal to achieve a further 10% reduction between 2022 and 2025.
IN THIS SECTION
TOWARDS
NET ZERO
We describe how the journey towards
Net Zero influences our strategic planning.
The Group has adopted a Reduce,
Replace, Remove framework for managing
its carbon intensity goals.
TCFD
REPORTING
Aligning our reporting to the Task Force
on Climate-related Financial Disclosures
(“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
Porvair plc Annual Report & Accounts 2022
Strategic report
31
Products and solutions to meet
evolving global needs
Porvair businesses support many critical
industries by providing products and
solutions that meet increasing demand
for safety, efficiency and environmental
benefit. Most Porvair products contribute
to a cleaner world by reducing emissions,
improving process efficiencies or
identifying pollutants.
We work in close partnership with our
customers to solve their increasingly complex
challenges and engineer products and
services to enable a more 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.
Porvair businesses support many critical industries by
providing products and solutions that meet increasing demand
for safety, efficiency and environmental benefit.
The Group offers filtration solutions to oil refineries
to improve the quality of bunker fuel for ships.
The Group’s maritime water analysis equipment
monitors small changes in the oceans’ chemical
composition.
The Group’s nuclear filters prevent emissions
of fissile material.
The Group’s water analysis equipment ensures
drinking water is fit for consumption and waste
water is not contaminated.
The Group’s industrial filters contain and
reduce emissions.
Many of the Group’s filters are cleanable and
reusable and can replace single use disposable
filters, reducing waste in customers filtration
systems.
The Group’s Metal Melt Quality products remove
contamination, cut waste and help to improve the
strength to weight ratio of metal components.
Many of the Group’s filters provide protection
from contamination for systems and processes,
which helps improve quality and longevity and
reduces waste.
The Board has direct responsibility and accountability for the 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
are included in all divisional reviews and senior management incentives.
We have processes in place to ensure our employees and other stakeholders
are aware of our focus in this area.
We recognise that, as a specialist filtration and environmental technology
business, we have an important part to play in enabling the transition to a zero
emissions future. 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.
We considered a 2
o
C scenario and have disclosed our findings 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.
Environmental and climate-related risks are disclosed as emerging risks
in the Annual Report and Accounts.
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 includes achievement of specific division-related ESG targets as
a metric in all its senior management annual bonus schemes.
The Group set out to cut our Scope 1 and Scope 2 carbon intensity ratio by
10% between 2020 and 2025 as a first step to reaching Net Zero emissions
across our direct operations (Scope 1 and 2 emissions) by no later than 2050.
It achieved this in 2022 and set a new target of a further 10% reduction
between 2022 and 2025.
The Group monitors its water usage and seeks to reduce usage in each of
its plants.
Our banking fees 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.
TCFD
REPORTING
Recommendations and disclosure summary
Porvair’s alignment and cross referencing
Task Force on Climate-related Financial
Disclosures report (“TCFD”)
The Financial Stability Board’s Task Force on
Climate-related Financial Disclosures (“TCFD”)
Recommendations encourage clear disclosure
of governance, strategy, risk management and
targets in relation to our environmental risks and
opportunities, enabling transparent disclosure on
how we are taking action on climate change.
The Group has adopted TCFD Recommendations
in 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.
In line with the UK Listing Rules, we confirm that
the disclosures included are consistent with the
TCFD Recommendations and Recommended
Disclosures. The table below sets out where you
can find information on how we have applied
each of the Recommendations of the TCFD.
Porvair plc Annual Report & Accounts 2022
Strategic report
32
ESG report
continued
Environmental
|
Social
|
Governance
Page 47 and
59 to 61
Pages 33 to 36
Pages 26 and 27
Pages 36 to 39
Note 18
Page 23
• 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 manges
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.
Porvair: how climate change actions
influence our strategic planning
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 action 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 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 2022
Strategic report
33
TOWARDS NET ZERO
As industries and governments
embrace Net Zero and Absolute
Zero goals there will be both
challenges and opportunities
for industry.
Natural resources and sustainable
design and innovation
Porvair is committed to responsibly
managing our own use of resources and
the environmental impact of the solutions
we provide to our customers.
We recognise our responsibility to the
wider community in which we operate,
managing our own impact as well as
understanding emerging environmental
trends that may have an impact on our
business, our customers and wider
stakeholders over time.
The Group has followed an environmental technology strategy since 2004
and as the company grows and evolves, climate change and its impact on the
environment are at the heart of our strategic thinking and actions.
•
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 (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 across
manufactured goods.
Porvair plc Annual Report & Accounts 2022
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 (“SAF”) 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 are helpful
in identifying likely technology pathways
(Source: ATI 2022 Destination Zero).
•
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 become
ubiquitous 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, 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 (“IRENA”) 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).
2
Environmental
|
Social
|
Governance
•
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 but the overall market is likely
to grow more slowly during 2020-2040
than was the case between 2000-2020.
There will still be opportunities in the
transition: 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.
•
Investment in biosciences will be
driven by a growing demand for clean
technologies and digital products.
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 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.
•
Tighter regulation will also drive growth
in test and measurement capabilities.
Water quality standards (10% 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 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 2022
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.
Porvair plc Annual Report & Accounts 2022
Strategic report
36
ESG report
continued
Carbon intensity and climate-related
business process improvement
•
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 be
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.
Environmental
|
Social
|
Governance
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.
Porvair plc Annual Report & Accounts 2022
Strategic report
37
Actions include:
• Moving to 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.
• 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.
• 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. Over the next two years, our glass
ovens will be replaced with ovens that are
33% more fuel efficient.
• Solar panels are being installed on one of the
larger UK plants. Several plants in the US are
considering installations in 2023.
• 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.
The Group has adopted a ‘Reduce, Replace, Remove’
framework for managing its carbon goals.
Case study
Contributing to renewable
chemistry
Royal Dahlman was awarded a contract
for the design and supply of special
process filters in a first of its kind plant-
fed production facility for FDCA
(furandicarboxylic acid) – a key building
block for many chemicals and plastics
such as PEF (polyethylene furanoate).
This plant-fed production facility offers
Royal Dahlman the opportunity to lead
the way in the new filtration requirements
of renewable chemicals manufacturing.
Improving fuel efficiency
33%
Over the next two years, our glass ovens
will be replaced with ovens that are 33%
more fuel efficient.
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 74.1 million (2021: 73.6
million) kWhr of energy in the year. 6.7 million
(2021: 6.8 million) kWhr was used in the UK.
The Metal Melt Quality division accounts for
71% (2021: 70%) of the Group’s emissions.
The 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.
The Aerospace & Industrial division and
the Laboratory division have reduced their
absolute carbon emission in the year.
The Metal Melt Quality division has only
increased its carbon emissions by 1%
despite an 1 1% increase in constant
currency revenue.
Group CO
2
emissions were highest in 2018
at 20.7 ktCO
2
and are 10% lower in 2022 at
18.7 ktCO
2
. In that four year period Group
revenue has increased by 34%.
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 2022 is 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 goal to
reduce carbon intensity by 10% from the
2022 base by 2025.
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. Porvair
Filtration Group’s Segensworth site has
eliminated Trichloroethylene from its
processes. To replace chromium trioxide,
used in Alocrom 1200, it has begun to design
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 2022 was 55 million litres (2021: 45 million
litres). 52% (2021: 54%) 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. Closed loop chiller systems will
be installed in 2023 which will significantly
reduce the volume of water used for
cooling. 41 % (2021: 38%) 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.
Total Group water consumption
55 million
litres
Total Group consumption of water in 2022
was 55 million litres (2021: 45 million litres).
Water usage
52%
52% 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 2022
Strategic report
38
ESG report
continued
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, a major initiative in 2023 will be to
install closed loop chillers to cool our US
sintering furnaces. Once installed and
operational this should significantly
reduce our water usage.
Environmental
|
Social
|
Governance
Energy consumption by geography
Energy consumption
(%)
71%
Metal Melt Quality
14%
Aerospace & Industrial
15%
Laboratory
Total for year ended 30 November 2022
Energy consumption by division
Geographical breakdown
(tCO
2
)
US: 14,463
UK: 2,694
ROW: 1,503
Total for year ended 30 November 2022
Greenhouse gas (GHG) emissions
Year ended
Year ended
Year ended
30 November 2022
30 November 2021
30 November 2010
tCO
2
tCO
2
tCO
2
Scope 1 – Direct GHG Emissions
Gas
10,536
10,468
8,571
Owned vehicles
468
412
368
Total scope 1 gross emissions
11,004
10,880
8,939
Scope 2 – Indirect GHG Emissions
Electricity
7,656
7,728
5,204
Total scope 2 gross emissions
7,656
7,728
5,204
Total gross emissions
18,660
18,608
14,143
kCO
2
/£
kCO
2
/£
kCO
2
/£
Scope 1 intensity ratio
0.064
0.074
0.142
Scope 2 intensity ratio
0.044
0.053
0.082
Total intensity ratio
0.108
0.127
0.224
Carbon & Emissions data
Measuring Scope 3 carbon emissions
and value chain carbon footprint
Greenhouse gas emissions are
categorised into three groups or
'Scopes' by the most widely-used
international accounting tool, the
Greenhouse Gas (GHG) Protocol.
Scope 1
covers direct emissions from owned or
controlled sources.
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 each year, for
thousands of different customers. 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.
The Group does not set an absolute
greenhouse gas emission target. We
expect demand for our products to grow
as the drive for Net Zero gathers pace,
and we therefore believe carbon
intensity is a better measure than
absolute emissions.
Porvair plc Annual Report & Accounts 2022
Strategic report
39
The Group has already met its target set in 2020 to cut its Scope 1 and Scope 2
carbon intensity ratio by 10% by 2025. We have re-set the target to reduce carbon
intensity by a further 10% between 2022 and 2025.
Geographical breakdown
(tonnes of CO
2
)
Year ended 30 November 2022
Year ended 30 November 2021
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
497
2,197
2,694
509
2,219
2,728
479
1,497
1,976
US
9,460
5,003
14,463
9,289
4,974
14,263
8,350
3,639
11,989
ROW
1,047
456
1,503
1,082
535
1,617
110
68
178
Total
11,004
7,656
18,660
10,880
7,728
18,608
8,939
5,204
14,143
Total gross emissions
18,660
(tCO
2
)
Total CO
2
gross emissions increased by 1%
to 18,660 tonnes in 2022.
Metal Melt Quality division energy
consumption
71%
71% of the Group’s emissions arise from the
Metal Melt Quality division.
Case study
Reducing Carbon intensity
The Group has already met its target set
in 2020 to cut its Scope 1 and Scope 2
carbon intensity ratio by 10% by 2025.
We have re-set the target to reduce
carbon intensity by a further 10%
between 2022 and 2025. In 2022 the
Aerospace & Industrial division and the
Laboratory division reduced their
absolute carbon emissions. The Metal
Melt Quality division has only increased
its carbon emissions by 1% despite an 11%
increase in its constant currency revenue.
Reducing energy consumption is an
important criterion in every capital
investment and as equipment is replaced,
particularly in Metal Melt Quality, we look
to replace old equipment with alternative
technologies with a lower carbon footprint.
Porvair plc Annual Report & Accounts 2022
Strategic report
40
ESG report
continued
SOCIAL
In 2022, we have continued
to develop our employee
engagement activities, gaining
valuable feedback on how we
perform and how we might
do better.
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.
MEASURING PERFORMANCE IN 2022:
Improving Staff Gender Ratios
We are committed to developing a diverse and inclusive
workplace and to making progress in this area.
IN THIS SECTION
OUR PEOPLE
HEALTH & SAFETY
CUSTOMERS
& SUPPLY CHAINS
COMMUNITIES
Senior Management diversity
Male: 28
Female:11
Diversity and workforce
Employee diversity
Male: 671
Female: 288
Board diversity
Male: 4
Female:2
Senior staff and Directors
28%
28% (2021: 25%) of the Group’s senior
staff and Directors are female.
Total staff
30%
30% (2021: 30%) of the Group’s
permanent workforce are female.
Total number in the workforce
959
(2021: 910)
The total Group permanent workforce
as at 30 November 2022.
Porvair plc Annual Report & Accounts 2022
Strategic report
41
People are critical to the
successful delivery of our strategy
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 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.
Employee engagement
We aim to engage and communicate with
our employees through both formal and
informal systems of communication and
consultation.
Approach to employee engagement
The employee engagement reporting to
the Board, and the Board’s communications
to the management, have been significantly
enhanced in 2022. The Board monitors
the scoring and staff commentary that is
derived from regular employee surveys.
These surveys provide useful feedback on
a plant by plant basis of employee concerns
and satisfaction, however cultural and other
differences mean these scores do not
lend themselves to a Group-wide metric.
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 2022
was 12.2% (2021: 15.4%). The Voluntary Quit
Rate of the median plant was 7.1% (2021: 8.3%).
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.
MEASURING PERFORMANCE IN 2022:
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 2022
The Voluntary Quit Rate has fallen across
the Group as a whole as a result of
greater focus on employee wellbeing.
The Voluntary Quit Rate varies from plant
to plant with several factors having an
effect including the nature of the work
at each plant and the local economic
conditions.
12.2%
The Group Voluntary Quit Rate was
12.2% (2021: 15.4%).
7.1%
The median plant had a Voluntary Quit
Rate of 7.1% (2021: 8.3%).
People are at the centre of our sustainable future
and a diverse and inclusive culture supports
performance and growth.
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 (sometimes more) 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.
•
The Board considers this process to be
working well: workforce views are fairly
reflected; communication is two-way;
Board discussion and decision making
are influenced by reports received; and
participation is encouraged.
Employee engagement in 2022
For the first time this year all senior
management annual bonuses had an
Employee Engagement (“EE”) metric.
Adding EE to the incentive scheme has
made a difference. There is more social,
training and team building activity being
undertaken. At our best, we have
encouraging staff surveys and low single
digit Voluntary Quit Rate scores. This is
not the case everywhere, but each plant
is getting better year by year.
This focus is also affecting wider thinking.
Several initiatives for 2023 have been
prompted by the EE process. In the
Aerospace & Industrial division, we will
focus on better staff communication across
sites and skills/talent development. The
Metal Melt Quality division is planning to
focus on developing skills in shopfloor staff
– specifically for new hires and temporary
staff where surveys have indicated that the
need is greatest. The Laboratory division
has generally a positive level of employee
engagement and high employee
satisfaction. JG Finneran has sharply
improved staff turnover but it remains
higher than we would like and further
initiatives to address conditions and the
challenges of the local employment market
will be introduced in 2023. At Kbio, staff
have benefited from aligning benefits with
those of Porvair in the UK, and further
initiatives will be introduced in 2023.
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 and Safety matters;
–
Financial and operational metrics;
–
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. Two EU sites
have workers councils. The proceedings
and issues they raise are reported to
the Board.
Porvair plc Annual Report & Accounts 2022
Strategic report
42
ESG report
continued
Environmental
|
Social
|
Governance
Identifying training opportunities
and upskilling requirements
Identifying training needs and stretching
our key staff is vital for the continuing
development of the Group.
Addressing fair pay and reward
Adjusting remuneration fairly has
been challenging in 2021 and 2022 as
inflation has surged. In our decentralised
operating model, the approach to salary
management varies by business and
geography but across the Group rates
of salary increase have been higher for
less well paid staff members in both
years. In 2022 some businesses also
made mid-year salary adjustments where
appropriate; others adjusted benefits
such as lunch vouchers; and all staff
received specific additional payments
or bonus adjustments to meet higher
living costs.
MEASURING PERFORMANCE
IN 2022:
Annual decreases in Lost Time
Accidents
(per 100 employees)
Keeping our employees safe is an
important responsiblity. Our ongoing
focus is to create a safe working
environment, and embedding rigorous
safety processes and procedures is
essential.
In 2022, lost time accidents per 100
employees reduced to 0.10. This was
only one accident which resulted in 61
days off work, the employee has now
returned to work. Days Lost To Accidents
increased to 6.1 days. We continue to
focus on reducing the risk of accidents
and the Laboratory division and
Aerospace & Industrial division reported
no Lost Time Accidents in the year.
Our approach to Health, Safety
and 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 2022 work
has included a full review of all our fire
related procedures. The review found that
we have the appropriate equipment in all
our operations, but some operating practices
and procedures have been tightened.
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 2022
In 2022, Lost Time Accidents per 100
employees reduced to 0.10. This was a
single accident which resulted in 61 days
off work. The employee has now returned
to work. Days Lost To Accidents increased
to 6.1 days. We continue to focus on
reducing the risk of accidents and the
Laboratory division and Aerospace &
Industrial division reported no Lost Time
Accidents in the year. A number of minor
accidents in the Metal Melt Quality division
has resulted in a full review of their safety
procedures. We continue to focus on
providing staff with safe working conditions
that minimise the risk of accidents.
Ensuring a safe and secure working
environment and supporting
employee wellbeing
Monitoring and reporting safety issues
helps reduce their occurrence. In 2022,
the Laboratory division and Aerospace &
Industrial division had no Lost Time Accidents.
Lost Time Accidents
(per 100 employees)
0.10
Days Lost to Accidents
(per 100 employees)
6.1
1.40
1.30
Performance in 2022
61
61 days were Lost To Accidents as a result
of one accident.
Porvair plc Annual Report & Accounts 2022
Strategic report
43
Safety in the workplace is an important responsibility
and priority to both protect employees and drive
our business success.
2018
1.40
2019
0.51
2020
1.30
2021
0.43
2022
2018
2019
2020
2021
2022
0.10
35
13
2
1.6
6.1
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.
Building close long term customer
relationships
Our products are specifically designed
for individual customers, most products
are consumable and require regular
replacement. This lends itself to
building long term relationships with
our customers.
Responsible and resilient supply chains
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 2022
Strategic report
44
ESG report
continued
Maintaining local supply chains
and ensuring responsible
procurement
Wherever possible the Group uses
locally based suppliers. It builds long
term relationships with those suppliers
and focuses them on quality and
delivery performance.
Environmental
|
Social
|
Governance
Porvair plc Annual Report & Accounts 2022
Strategic report
45
Supporting local community projects
The Group encourages its employees to
participate in local community activities.
Teams of employees have helped repair
homes for the disadvantaged, planted trees
in various locations, helped in local river
clean-up projects, run for charity and
supported Ukrainian refugees amongst
many other charitable efforts.
Local investment and support helps us to build strong
relationships in the communities where we operate and
contribute to local sustainable development.
Porvair and the local community
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 Aerospace & Industrial division has
contributed to a number of local charities
to support disadvantaged local people
and communities.
The Metal Melt Quality 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.
A number of employees participate in
projects to repair homes and provide
facilities for the disadvantaged in the
community and are active in mentoring
and providing support for the children
of single parent families.
The Laboratory group in the UK has
supported a local Ukranian refugee family
and throughout the Laboratory division
money has been raised for Ukranian
related charities. The Laboratory division
in the US has contributed to a number of
water initiatives and charities. Employees
made donations to charities supporting
cancer relief and local deprived children.
The Group 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.
GOVERNANCE
Strong and effective governance and ethical
practice are essential considerations for Porvair as
we develop our sustainability commitments and
progress towards our targets.
Transparent and robust governance, safe and
responsible operations, continuous improvement
and innovation are key to delivering our strategy.
Our corporate governance framework operates
effectively to protect stakeholder value over the
long term.
Our main stakeholders are:
CUSTOMERS
• We seek to build long term stable
relationships with our customers.
• Our products are generally bespoke for
specific customers and are designed and
tested in partnership with those customers.
• Our products often 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-
corruption and anti-bribery 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-
corruption and anti-bribery 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,
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.
PRIORITIES FOR PORVAIR
• Balancing the interests of all our stakeholders.
• Responsible and ethical conduct.
• Board oversight of climate-related risks and opportunities.
• Embedding ESG metrics and targets at the core
of the business.
Porvair plc Annual Report & Accounts 2022
Strategic report
46
ESG report
continued
Open, regular and transparent
engagement with stakeholders
is fundamental to the way we
do business and ensures we
operate in a balanced and
responsible way.
Responsible business governance
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 2022.
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 of the Annual Report.
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 in 2019 provided expert
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 –
.
Porvair plc Annual Report & Accounts 2022
Strategic report
47
Read more about how the Board considers
stakeholder interests in the s172 Statement
on pages: 48 to 50.
Non-Financial Reporting requirements
We will continue to comply with the
Non-Financial Reporting requirements
contained in Section 414C 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
The Group has adopted TCFD
Recommendations in 2022.
Aligning our reporting to the TCFD
Recommendations informs our key
stakeholders of the climate-related issues
that may impact Porvair.
The Board is collectively
responsible and accountable
for the delivery of our strategy
and ensuring we sustain our ESG
commitments over the long term.
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.
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 he/she acts in the way he/she
considers, 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 2022
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 2022.
(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 2022
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 41 to 43).
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 confirmity
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 2022
1. A refinement of the basis for
allocating capital.
Decision taken in November 2022
The decision
The Board sees many opportunities for
the future development of the Group and
has chosen to focus its capital allocation
on those segments where it sees faster
growth opportunities.
These include:
•
Laboratory filtration and functional media;
•
Specialist laboratory consumables,
instruments and robotics;
•
Filters for: microchip manufacture, nuclear
power generation and waste containment;
space rocketry; and turbine blades; and
•
Productivity investments.
Along with normal hurdle rates and financial
analysis, the Board considers carbon
intensity, safety and employee engagement
benefits in its capital allocation decisions.
How stakeholders were considered
The decision to refine the allocation of
capital was taken to improve the growth in
revenue and margins of the business and
its environmental footprint. A successful
execution of this decision will benefit all
stakeholders providing higher quality
work for all staff and suppliers, improving
returns for shareholders, and improving
ESG metrics.
2. Deciding whether to approve
an acquisition.
Decision taken in 2022
The outcome
The Board spent much of 2022 evaluating a
promising acquisition that met all its strategic
and financial criteria. Terms were agreed
and due diligence – with its attendant costs
– well advanced before concerns over
various issues relating to culture and values
of the potential target led the Board to abort
discussions.
How stakeholders were considered
Stakeholders were considered in this
decision which noted particularly the
devolved nature of Porvair management
and the negative effect on employee
engagement that the target company
might have effected
3. Decisions to pay the interim
dividend and recommend the
final dividend for 2022.
Decisions taken in June 2022 and
January 2023
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 1.9 pence and recommended that
the final dividend should be increased by
0.3 pence to 3.8 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.
4. Deciding the basis for the 2023
pay award.
Decision taken November 2022
The outcome
In our decentralised operating model the
approach to salary management varies by
business and geography. The Remuneration
Committee has oversight of employee pay
and the Board sought to balance the long
term financial strength of the Group with
a desire to support staff in times of high
inflation. The Board approved a combination
of salary increases, specific additional
payments, bonus increments or benefit
enhancements appropriate to the geography
and market of each business with more
junior or lower paid staff receiving higher
percentage awards in each facility.
How stakeholders were considered
This decision directly affects two key
stakeholders: shareholders and staff.
Overall pay and on-costs account for
approximately 30% of Group revenues
and so wage rates have a direct affect on
financial performance. The Board was
cognisant of this while seeking to find ways
to support staff hit by high inflation and
specific cost of living issues related to utility
prices in 2022. It was felt that an approach
combining a salary increase well ahead of
the average award over the last ten years
with specific one-off payments or benefit
enhancements struck the right balance.
5. Approval of Porvair’s strategic
plan for 2023 to 2026.
Decision taken in November 2022
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. Three and five 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 2022
Strategic report
50
Section 172 Statement
continued
DEFINITION OF PRINCIPAL DECISIONS
We define principal decisions taken by the Board as those decisions in 2022 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 funding the pension scheme, dividend policy and capital allocation.
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
27 January 2023
Porvair plc Annual Report & Accounts 2022
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 47
Governance report on pages: 59 to 61
ESG report on page: 47
• 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 46
• Anti-bribery and corruption policy
• Risk assessment
ESG report on page: 47
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: 4 and 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 INFORMATION STATEMENT
This section of the Strategic report constitutes the non-financial 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
3
1
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 2022
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 FY22 and the
year to date:
• Jasi Halai will resign from the Board on
31 January 2023.
• Ami Sharma was appointed to the Board as
an Independent Non-Executive Director on
1 January 2023.
Further information on the appointments and
Board succession planning activities can be
found on pages 59 to 62.
Board diversity
• The gender ratio of the Board throughout
the year was 40% female and 60% male, on
the appointment of Ami Sharma on 1 January
2023 the ratio became 33% female and
67% male.
Sally Martin
Senior Independent Non-Executive Director
Appointed to the Board in October 2016.
External appointments:
Sally was, until 2021, Supply and Trading
Operations Manager for Europe & Africa in
the Shell International Trading and Shipping
Company Limited. In a thirty year career
with Shell, Sally built a strong track record
in strategy; M&A; international business
development; and engineering and operations.
Relevant experience:
Sally brings a wealth of experience in strategy,
business development, engineering and
operations. She has 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.
Jasi Halai
Independent Non-Executive Director
Appointed to the Board in June 2019.
External appointments:
Jasi joined the Board of 3i Group plc as
Chief Operating Officer in May 2022. Jasi
was previously Group Financial Controller
and Operating Officer for 3i Group plc and
has held a broad range of senior finance
positions at 3i since 2005.
Relevant experience:
Jasi’s role in the financial management of
the portfolio of 3i Group plc companies gives
her recent and relevant financial experience
and makes her ideally suited to chair the
Group’s Audit Committee. She is a member
of the Chartered Institute of Management
Accountants and holds an MSc in investment
management from the CASS Business School.
Committee membership:
Chair of the Audit Committee and member
of the Remuneration and Nomination
Committees.
A
N
R
A
N
R
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 from February
2023. He is a Fellow of the Institute of
Chartered Accountants of England and Wales.
Committee membership:
Member of the Audit, Remuneration and
Nomination Committees.
A
N
R
Porvair plc Annual Report & Accounts 2022
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 2022.
Developments in 2022
Ami Sharma was appointed as an Independent Non-Executive
Director with effect from 1 January 2023. Jasi Halai will resign from
the Board on 31 January 2023 at which point Ami will become
Chair of the Audit Committee.
The Group made progress in three specific areas of Governance
in 2022:
•
Internal audit processes and procedures were strengthened;
•
The Group’s approach to the promotion of talent and succession
planning improved; and
•
Employee engagement processes were strengthened throughout
the Group, including the introduction of a Voluntary Quit Rate KPI
as part of the assessment of employee satisfaction.
John Nicholas,
Chair
27 January 2023
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 2022.
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 and 62.
Section 4: Audit, risk and internal control on pages:
60, 61, 63 and 64.
Section 5: Remuneration on pages: 65 to 81.
Porvair plc Annual Report & Accounts 2022
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 2022
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,
day to day management of the business and all matters
which have not been reserved for the Board.
Aerospace & Industrial
Division
Porvair Filtration Group
Royal Dahlman
Seal
Analytical
UK & US
Kbiosystems
Porvair Sciences
JG Finneran
US, Germany,
Netherlands & China
UK, US, Netherlands
& 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 81.
The Directors are pleased to present their Annual Report and the
audited accounts of the Group for the year ended 30 November
2022.
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 1.9 pence per share (2021: 1.8 pence per
share) was paid on 26 August 2022. The Directors recommend
the payment of a final dividend of 3.8 pence per share (2021: 3.5
pence per share) on 7 June 2023 to shareholders on the register
on 5 May 2023; the ex-dividend date is 4 May 2023. This makes
a total dividend for the year of 5.7 pence per share (2021: 5.3 pence
per share).
Directors and their interests
The names and biographical details of the Directors are set out on
pages 52 and 53. All Directors served throughout the year. Ami
Sharma joined the Board on 1 January 2023. 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 12
month notice period. The Non-Executive Directors have letters of
appointment that include a 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 65 to 81.
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.
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.
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, £3.5 million (2021: £3.1 million)
of development expenditure was written off to the income statement
and no development expenditure (2021: £nil) was capitalised. The
expenditure is of a development nature rather than research and is
largely undertaken in-house rather than by third parties.
Greenhouse gas emissions
The disclosure of the Group’s greenhouse gas emissions is given
in the ESG report on page 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 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 (2021: 120,000) for a total consideration of
£749,000 (2021: £716,000). During the year, the EBT did not issue
any ordinary shares (2021: 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 £3,782,000 (2021:
£3,033,000). As at 30 November 2022, the EBT held a total of
375,700 ordinary shares of 2 pence each (2021: 255,700) at a
cost of £2,237,000 (2021: £1,488,000) and a market value of
£2,051,322 (2021: £1,764,000).
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 2022
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 information statement
Non-financial information required by s414C of the Companies Act
2006 can be found by using the references given on page 51 of
the Strategic report.
Substantial shareholders
As at 27 January 2023, 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
16.69
Liontrust Asset Management
4,102,065
8.85
Impax Asset Management
3,805,127
8.21
Blackrock Investment Management
2,592,207
5.85
Financiere de L'Echiquier
2,295,540
4.96
Odin Fund Management
1,561,695
3.37
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.
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 page 25.
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 18 April 2023. 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.
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;
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.
Porvair plc Annual Report & Accounts 2022
Governance
57
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
27 January 2023
Porvair plc Annual Report & Accounts 2022
Governance
58
Directors’ report
continued
Porvair plc Annual Report & Accounts 2022
Governance
59
Corporate governance
Compliance
The Company has adopted the main 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, such other meetings as are required are
arranged to deal with specific issues or transactions. 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. Jasi Halai,
Sally Martin, John Nicholas and Ami Sharma 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 have
met with the Company’s major shareholders and other potential
investors on a regular basis and have reported to the Board on
those meetings.
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, 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 81 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.
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.
These formal reviews, conducted either in person or on-line, cover:
•
Health and safety;
•
Operational performance;
•
Risk reviews;
•
Employee engagement activities; and
•
Investment decisions including carbon 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 2022
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 with
common Group systems 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 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 the Group’s internal audit
arrangements provide an acceptable level of review, appropriate
for the size of the business.
Whistleblowing policy
– the Group has a formal whistleblowing
procedure which gives employees the opportunity to escalate their
concerns, ultimately to the Senior Non-Executive Director. There
were no matters arising in 2022 that were treated as whistleblowing
incidents (2021: none).
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.
The Audit Committee and the Board have reviewed the
effectiveness of the Group’s internal controls for the period from
1 December 2021 up to the date of approval of the Annual Report
and Accounts and have addressed issues as they have been
identified.
Chris Tyler
Company Secretary
27 January 2023
Porvair plc Annual Report & Accounts 2022
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 Company’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 are
considered by the Committee at least once a year to identify likely
succession requirements and 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. 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.
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. The Board currently has six
members, it expects to have either five or six members. The Board
will seek to ensure that the composition of the Board includes at
least two female and two male members. The gender ratio of the
Board throughout the year was 40% female and 60% male, on the
appointment of Ami Sharma on 1 January 2023 the ratio became
33% female and 67% male.
2022 activities
The Nomination Committee met twice during the period to
appoint a new Non-Executive Director and to consider the Group’s
leadership, 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
because this aligns with the Group’s overall strategy. The Board
considers that the current composition of the Board has an
appropriate balance of gender and racial diversity.
In October 2022, Jasi Halai announced that she would resign
from the Board following completion and sign off of the 2022
Financial year report and accounts. The Committee, with the help
of a search consultancy, Independent Search Partnerships, which
is independent and has no connection with either the Company or
its Directors, conducted a search for a new Non-Executive Director,
with the appropriate skills to become Chair of The Audit Committee
following Jasi’s departure. The Committee recommended to the
Board that Ami Sharma be appointed from a shortlist of candidates.
A further search is underway to consider the appointment of an
additional female Non-Executive Director.
All Directors are required to submit themselves for re-election
every year at the Annual General Meeting.
John Nicholas
Chair of the Nomination Committee
27 January 2023
Porvair plc Annual Report & Accounts 2022
Governance
62
Report of the Nomination Committee
Porvair plc Annual Report & Accounts 2022
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, 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. Jasi Halai is the Chair of the Committee. Ami Sharma was
appointed to the Committee on 1 January 2023. As previously
announced, Jasi retires on 31 January 2023 when Ami will become
Chair of the Audit Committee. The Board has designated Jasi Halai
and Ami Sharma as members of the Committee with recent and
relevant financial experience. Sally Martin is the other member
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 full year and interim announcements. At those meetings,
the Committee considered the financial reporting judgements
made by management. Its deliberations are 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 long term contracts in respect of major projects, including
gasification projects, entered into in previous years and other
contracts entered into in the year ended 30 November 2022.
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 £4.0 million as at
30 November 2022. £3.7 million relates to warranties on contracts,
of which £2.5 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 reported to the Board that it considered
that, taken as a whole, the 2022 Annual Report was fair, balanced
and understandable and included the necessary information to
assess the performance, business model and strategy of the Group.
The Committee reviewed papers specifically relating to:
•
pension accounting;
•
contract judgements, including provisions;
•
the carrying value of goodwill and intangible assets;
•
calculation of share-based payments; and
•
going concern and viability.
Meetings between the Committee Chair, the External Auditor
and the Group Finance Director prior to 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 2023 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.
In addition to its work reviewing the Group’s financial statements,
the Committee has:
•
reviewed announcements relating to the 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;
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 issues.
The Committee has put a particular emphasis in the year on:
•
Implementing improvements to the scope, delivery and
reporting of the Group’s Internal Audit programme;
•
Ensuring that internal controls are maintained throughout
the Group;
•
Visiting certain operating businesses around the Group; 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.
Jasi Halai
Chair of the Audit Committee
27 January 2023
•
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. During the year,
improvements were made to the scope, delivery and reporting
of the Group’s Internal Audit programme, with a particular emphasis
on the tracking and closure of matters raised, and sharing best
practice and knowledge across the Group. 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;
•
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 2022 and the work carried out by RSM in
relation to their audit of the Group and Company accounts for the
year ended 30 November 2022. 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; 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 and 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. 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 External Auditor
RSM was appointed on 15 September 2020 following a competitive
tender process. Graham Ricketts has been the audit partner since
appointment.
Porvair plc Annual Report & Accounts 2022
Governance
64
Report of the Audit Committee
continued
Porvair plc Annual Report & Accounts 2022
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 2022. In line with the UK Government reporting
regulations on Directors’ pay, introduced in October 2013, and
the 2018 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 2022 and includes a summary of the
plans in place for 2023; and
•
a Remuneration Policy statement – that sets out the components
of the Company’s current remuneration policy and is in place for
three years from 20 April 2021.
We will seek your support for the annual report on remuneration,
in the form of an advisory vote at the AGM on 18 April 2023.
We would like to thank shareholders for their support of the 2021
Remuneration report. At the AGM on 14 April 2022, the advisory
vote on the 2021 Remuneration report received almost 100% 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 Remuneration
Committee met twice during the year. The meetings were fully
attended by the Committee members.
The Remuneration 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.
Inflation and wider staff remuneration
The Committee’s oversight of remuneration across the wider
Group has been more prominent in 2021 and 2022 as inflation has
surged. In our decentralised operating model the approach to
salary management varies by business and geography but the
Committee noted that in each operation rates of salary increase
have been higher than average for lower paid staff members. In
2022 some businesses have also made mid-year salary adjustments;
others have adjusted benefits such as lunch vouchers; and all staff
have received specific additional payments or bonus adjustments
at the year end to meet higher living costs. In both 2021 and 2022
the Executive Directors, who are based in the UK, have been
awarded salary increases at the same rate as other UK managers.
Lower paid employees have received higher percentage increases.
Annual bonus awards and vesting of Long Term Share Plan
Porvair’s corporate purpose, as stated in the section “Strategy
and business model” of the Annual Report, 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.
2022 bonus and LTSP vesting
In the past year, the cash generation performance of the
Group was good. The Committee approved a maximum award
of 70% of salary for the financial component of the annual bonus.
Progress was made towards the agreed strategic objectives. The
Committee decided that a 25% of salary award would be made
for achievement of these objectives, representing 83% of the
maximum in relation to this component of the annual bonus.
In 2019, the Committee set a target for the long term incentive
award, granted in January 2020, of adjusted earnings per share
of 33.7 pence in the year ended 30 November 2022 to achieve
100% vesting. 30% of the award would vest if the Group achieved
adjusted EPS of 29.2 pence in FY2022. A sliding scale would
operate if the adjusted EPS is between 29.2 pence and 33.7 pence.
Adjusted earnings per share in the year ended 30 November
2022 was 33.2 pence, accordingly, 92% of the granted options
vested and 8% lapsed.
2023 targets and grants
For 2023 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 will vest based on the earnings per share in the year
ending 30 November 2025. Vesting in full will require the Group
to achieve adjusted EPS of at least 50.5 pence, requiring 15%
compound annual growth over the three year period.
Sally Martin
Chair of the Remuneration Committee
27 January 2023
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 considerations
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.
Porvair plc Annual Report & Accounts 2022
Governance
66
Remuneration report
continued
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 2023.
The Committee
The Remuneration 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 Remuneration Committee are drawn solely from the independent Non-Executive Directors. The Remuneration
Committee currently comprises all of the independent Non-Executive Directors of the Company. 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 Remuneration
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
2022
bonus
incentives
2022
2022
2022
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
E
xecutive Directors
J A Mills
195
14
14
223
185
–
185
408
B D W Stocks
333
29
20
382
316
264
580
962
Basic salary
Taxable
Fixed Total
Annual
Long term
Variable Total
Total
and fees
benefits
Pension
2021
bonus
incentives
2021
2021
2021
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Executive Directors
J A Mills (appointed 12 April 2021)
125
9
8
142
110
–
110
252
B D W Stocks
322
17
36
375
290
–
290
665
C P Tyler (resigned 20 April 2021)
88
8
18
114
79
–
79
193
In 2022 the Executive Directors incurred PAYE tax and national insurance contributions amounting to £445,000 (2021: £483,000).
The Executive Directors’ basic salary will be increased from 1 December 2022 by 4% (2021: 3.5%). This is in line with the general salary for
all other employees.
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, which is now closed to new
employees. 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 2022
Governance
67
Pension benefits, up to the capped limit of £159,000 of salary until 31 March 2022 and £164,400 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 60 on 30 November 2022. 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 21% additional salary on the difference between his full salary and the capped limit in lieu of pension benefits
until 1 March 2021, when the additional salary reduced to 17%. It subsequently reduced to 12% on 1 December 2021. A further reduction to
7% was implemented on 1 December 2022. This additional salary is not included in calculations for annual bonus or Long Term Share Plan
awards. James Mills receives a 7% of basic salary contribution towards a pension scheme in line with the rest of the workforce.
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 2022, 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 2022:
% 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
£17.15m
£20.15m
25%
70%
£21.9m
70%
Strategic: For Group margin improvement, operational
performance in the Aerospace & Industrial division
see
and progress in acquisitions
N/A
N/A
N/A
30%
below
25%
The adjusted operating cash flow can be reconciled to the cash generated from operations. It is a measure that is impacted by Group
profitability and control of working capital. It is based on the management accounts for the year, which 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.
The Committee noted, in relation to the strategic objectives, that progress was made in margin improvement initiatives. Excellent work
had been done on improving employee engagement and reducing the employee Voluntary Quit Rate; further progress had been made
on reducing carbon intensity; and, although Group revenue growth was impressive with good progress on projects and new product
development, no acquisitions had been completed in the year. The Committee concluded that a 25% of salary bonus should be paid,
to reflect the progress made in the year. This represents 83% of the maximum bonus achievable for strategic objectives.
For 2023 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 Remuneration Committee before the start of the financial year. Achievement of
plan will be rewarded with a 25% of salary award. Non-financial strategic targets will again be based on margin improvement, progress on
achieving ESG metrics and progress on major projects including product introductions, larger sales contract wins and acquisitions that
support above trend profitable growth.
The Committee considers these targets to be consistent with the Group’s strategy and purpose.
Vesting of Long Term Share Plan
2021 vesting
Options granted in 2019 under the LTSP 2018 scheme can only be exercised in full if the Committee is satisfied that in the financial
year ended 30 November 2021 (“FY2021”) the Group achieved Adjusted EPS of at least 30.9 pence. 30% of the award vests if the Group
achieved Adjusted EPS of 26.5 pence in FY2021. A sliding scale operates if Adjusted EPS are between 26.5 pence and 30.9 pence.
No shares vest if the Adjusted EPS in FY2021 was below 26.5 pence. No shares from this award vested.
2022 vesting
Options granted in 2020 under LTSP 2018, 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 EPS of at least 33.7 pence. 30% of the award vests if the Group achieved
Adjusted EPS of 29.2 pence in FY2022. A sliding scale operates if Adjusted EPS are between 29.2 pence and 33.7 pence. No shares vest
if the Adjusted EPS in FY2022 are below 29.2 pence. Based on an Adjusted EPS of 33.2 pence achieved in FY2022, 92% 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 in 2018. The LTSP 2008 scheme may not grant any awards
after 8 April 2018. A resolution put to the AGM on 17 April 2018 introduced a new LTSP (“LTSP 2018”) on substantially the same terms as the
old scheme. The schemes provide 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 principal differences between the LTSP 2008 and the LTSP 2018 are:
•
Malus provisions are embedded in the LTSP 2018 scheme documentation.
•
Clawback provisions are available at the discretion of the Committee.
•
A cap of 250% of base salary, at the discretion of the Committee, to be used in exceptional circumstances. LTSP 2008 had an
uncapped discretion.
•
The Committee may make normal awards up to 150% of salary per annum to an Executive.
•
LTSP 2018 makes provision for the Committee to introduce a 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 and February 2021.
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 at 30 November 2022 was 546 pence per share (2021: 690 pence per share).
The range of market prices during the year was 499 pence to 772 pence.
Directors’ holdings in shares and share options
In awarding long term incentive shares to the Executive Directors, the Remuneration 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, James Mills has until April 2026 to achieve the target.
The beneficial interests at 30 November 2022 and 30 November 2021 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.
2022
2021
Ordinary
Share
Ordinary
Share
shares
options
shares
options
(number)
(number)
(number)
(number)
Executive Directors
J A Mills
8,487
90,350
–
46,200
B D W Stocks
528,022
217,730
673,253
154,137
Non-Executive Directors
J H Halai
2,933
–
2,933
–
S J Martin
–
–
–
–
J E Nicholas
7,500
–
7,500
–
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:
Porvair plc Annual Report & Accounts 2022
Governance
68
Remuneration report
continued
At 30
At 30
November
Granted
Lapsed
Exercised in
November
2021
in the year
in the year
the year
2022
Exercise
Exercisable
(number)
(number)
(number)
(number)
(number)
price
Grant date
from
Expiry date
B D W Stocks
Vested
2018
54,000
–
(4,320)
–
49,680
2p
07/02/2020
07/02/2023
07/02/2030
SAYE
7,537
–
–
(7,537)
–
398p
01/10/2017
01/10/2022
01/04/2023
Unvested
2018
92,600
–
–
–
92,600
2p
02/02/2021
02/02/2024
02/07/2031
2018
–
75,450
–
–
75,450
2p
02/02/2022
02/02/2025
02/07/2032
154,137
75,450
(4,320)
(7,537)
217,730
J A Mills
Unvested
2018
46,200
–
–
–
46,200
2p
21/04/2021
21/04/2024
21/04/2031
2018
–
44,150
–
–
44,150
2p
02/02/2022
02/02/2025
02/07/2032
46,200
44,150
–
–
90,350
Scheme interests awarded during the financial year
The table below sets out the options granted during 2021 and 2022:
Share price
Face value
Exercise
used to
of grant
Date of grant
Scheme
Number
price
value grant
£’000
B D W Stocks
2 February 2021
2018
92,600
2p
521p
482
2 February 2022
2018
75,450
2p
662p
499
J A Mills
21 April 2021
2018
46,200
2p
553p
255
2 February 2022
2018
44,1 50
2p
662p
292
C P Tyler
2 February 2021
2018
65,000
2p
521p
339
For performance over the three year period to 30 November 2025, the Committee has decided that Ben Stocks will be awarded 97,475
2 pence options and James Mills will be awarded 57,070 2 pence options under LTSP 2018 immediately after the announcement of the
Group’s results. The share price used to value the grant was 533 pence per share.
The Long Term Share Plan shares granted were 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. 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 2021 under the LTSP 2018 scheme can only be exercised in full if the Committee is satisfied that in the financial year
ending 30 November 2023 (“FY2023”) the Group has achieved Adjusted EPS of at least 32.9 pence. 20% of the award will vest if the
Group has achieved Adjusted EPS of 24.3 pence in FY2023. A sliding scale will operate if Adjusted EPS are between 24.3 pence and
32.9 pence. No shares vest if the Adjusted EPS in FY2023 are below 24.3 pence.
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 EPS of at least 38.3 pence. 20% of the award will vest if the
Group has achieved Adjusted EPS of 28.3 pence in FY2024. A sliding scale will operate if Adjusted EPS are between 28.3 pence and
38.3 pence. No shares vest if the Adjusted EPS in FY2024 are below 28.3 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 2025 (“FY2025”) the Group has achieved
Adjusted EPS of at least 50.5 pence. 20% of the award will vest if the Group has achieved Adjusted EPS of 37.3 pence in FY2025.
A sliding scale will operate if Adjusted EPS are between 37.3 pence and 50.5 pence. No shares vest if the Adjusted EPS in FY2025 are
below 37.3 pence.
Porvair plc Annual Report & Accounts 2022
Governance
69
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 SAYE scheme 2017, 2019 and 2021 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 2022 the
Trust held 375,700 shares (2021: 255,700 shares).
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.
The Executive Directors did not exercise any share options or sell any shares in 2021.
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
2022
£’000
J H Halai
43
S J Martin
43
J E Nicholas
100
186
Basic salary
and fees
2021
£’000
J H Halai
39
S J Martin
39
J E Nicholas
94
172
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
granted to him under the LTSP 2018 granted to him prior to 20 April 2021. No other payments (2021: £nil) were made during the year
ended 30 November 2021 to any other former Directors of the Company or any other Group company.
Porvair plc Annual Report & Accounts 2022
Governance
70
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 the logical comparator index.
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
022
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%
87.5%
2016
Ben Stocks
991
90%
95%
2015
Ben Stocks
1,151
97%
100%
2014
Ben Stocks
1,298
100%
100%
2013
Ben Stocks
1,169
97%
100%
The table below shows the percentage change in remuneration of the Executive Directors and the Group’s UK employees as a whole
between 2021 and 2022.
Chief Executive Officer
UK employees
Salary and fees
3.5%
4%
Taxable benefits
70%
2%
Annual bonuses
100%
72%
Total
45%
7%
James Mills, the Group Finance Director, will be added to this table for the first time in 2023 as this will be the first time he has two full
years service.
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.
Jan 12
Jan 13
Jan 15
Jan 14
Jan 22
Jan 16
Jan 17
Jan 18
Jan 19
Jan 20
Jan 21
Total Return – (Rebased to 100)
—
FTSE SmallCap Index
—
Porvair
0
200
400
600
800
1000
10 year total shareholder return
Jan 23
Percentage increase/(decrease) in
remuneration in 2022 compared with 2021
Porvair plc Annual Report & Accounts 2022
Governance
71
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 2022 as the comparator Group. We have used Option A as we consider it to be
the most accurate method of comparison.
25th
50th
75%
Year
Method
percentile
percentile
percentile
2020/2021
Option A
27
21
16
2021/2022
Option A
36
28
21
25th
50th
75%
Year ended 30 November 2022
percentile
percentile
percentile
Salary
£25,952
£31,874
£42,060
Total remuneration
£26,726
£33,791
£44,978
The ratios are higher in the current year because 92% of the Chief Executive’s Long Term Share Plan shares vested in the year ended
30 November 2022 (2021: £nil). 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 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 and the investments made by the Group for capital expenditure, acquisitions, and research and development.
2021
2022
Difference
£’000
£’000
£’000
Total spend on pay
45,332
57,799
12,467
Dividends paid
2,345
2,478
133
Investments:
Capital expenditure, acquisitions, and research and development
10,292
9,330
(962)
Statement of voting at the Annual General Meeting
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. 96.8% of votes were cast in favour of the resolution. 3.2% of votes were cast against the resolution and 947,611 votes
were withheld.
A resolution to approve the Report of the Remuneration Committee included in the 2020 Report and Accounts was passed by the
shareholders at the AGM on 20 April 2021. Almost 100% of votes were cast in favour of the resolution and 668,087 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. No independent
advice was taken. Independent advice on remuneration was last taken in 2020 in preparation for the revised remuneration policy. Alvarez
& Marsal were appointed to advise the Committee following a tender process. The fee was £15,000 based on the time involved.
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.
Remuneration Policy
The Remuneration Policy, set out on pages 73 to 81, was approved by shareholders at the Annual General Meeting on 20 April 2021.
The Remuneration Policy is expected to remain in force until the AGM in 2024.
On behalf of the Board
Sally Martin
Chair of the Remuneration Committee
27 January 2023
Porvair plc Annual Report & Accounts 2022
Governance
72
Remuneration report
continued
Porvair plc Annual Report & Accounts 2022
Governance
73
REMUNERATION POLICY AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 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 was approved by shareholders at the April 2021 Annual General Meeting and will remain in force until the
Annual General Meeting in 2024.
Changes from the previous policy
The Committee believes that the two previous remuneration policies have served the Group and its shareholders well. However,
certain new “best practice” features have developed since the last approval of our policy and the Committee has decided that these
should be adopted.
Changes in the 2021 Policy are:
•
Reduce Executive Director pensions to the UK workforce level by 1 December 2022;
•
Introduce formal bonus deferral options;
•
Remove the discretion to grant exceptional LTSP awards of 250% of base salary;
•
Amend the clawback and malus provisions to introduce the additional triggers of miscalculation, serious reputational damage and
corporate failure;
•
Increase the shareholding requirement from 1x to 2x base salary; and
•
Introduce a post-employment shareholding requirement.
These changes, together with some minor changes to help the implementation of the policy, 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
cash contribution 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 current level of contribution provided to
the Executive Directors is disclosed in the
Remuneration report. The maximum Company
contribution will not exceed 25% of base salary.
By 1 December 2022, the level of contribution
provided to the Executive Directors will be in line
with that offered to other UK staff. Thereafter,
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 remuneration package for Executive Directors:
Fixed remuneration components
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 AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 AGM
Porvair plc Annual Report & Accounts 2022
Governance
74
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
after 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 after the announcement
of the Group’s annual results.
•
The payment for achievement of the threshold
performance target is no greater than 35%
of the maximum annual bonus opportunity.
•
The bonus is normally paid in cash. However,
the Deferred Share Bonus Plan will allow 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 100% of base salary.
Remuneration component
How the component operates
Maximum payouts
Variable remuneration components
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 measure, are measured on a sliding scale with the maximum payout reserved for significant
outperformance compared to plan. The strategic targets are typically based on achievement of specific identified objectives critical to the
delivery of the Group’s annual or three-year operating plans; their achievement is based on the judgement of the Committee.
REMUNERATION POLICY AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 AGM
Porvair plc Annual Report & Accounts 2022
Governance
75
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
realized 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, after
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 preceeding 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 vesting each LTSP award. The Committee aims to set
stretching vesting criteria based on achievement of financial goals set out in the Group’s 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 maximum and minimum.
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.
REMUNERATION POLICY AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 AGM
Porvair plc Annual Report & Accounts 2022
Governance
76
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
Plan 2014.
The Group offers new SAYE schemes to coincide
with the maturity of previous SAYE schemes. This
means that schemes generally commence on 1
October in years when a scheme matures.
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 after 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 authorized 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 after
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 AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 AGM
Porvair plc Annual Report & Accounts 2022
Governance
77
•
allow an employee leaving for reasons other than as a good leaver to be able exercise their options after 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.
•
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 his 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 (after 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) after three years from the date on which the award shares became vested
award shares.
REMUNERATION POLICY AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 AGM
Porvair plc Annual Report & Accounts 2022
Governance
78
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 2021, using the LTSP awards to be made in 2021 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 2020.
•
Pensions are assumed to be in line with current practice.
For performance in line with both the annual and three-year operating plan
•
Annual bonus of 35% of salary.
•
Long term share plan (‘LTSP’) award of 20% of maximum.
•
Share price based on the final quarter of the financial year ended 30 November 2020 (521 pence).
For performance significantly above both the annual and three year operating plan, the maximum award based on:
•
Annual bonus of 100% of salary.
•
LTSP award of 150% of salary.
•
Share price based on the final quarter of the financial year ended 30 November 2020 (521 pence).
For the maximum award assuming a 50% increase in the share price the calculation is based on:
•
Annual bonus for 100% of salary.
•
LTSP award of 150% of salary.
•
A share price of 780 pence.
1,500
1,300
1,100
900
700
500
300
100
0
423
632
1,469
22%
49%
Fixed
On plan
Maximum,share
price plus 50%
Fixed
Annual
LTSP
Ben Stocks
£’000
100%
67%
18%
15%
1,228
Maximum
34%
26%
39%
28%
1,500
1,300
1,100
900
700
500
300
100
0
282
429
1,016
22%
50%
Fixed
On plan
Maximum,share
price plus 50%
Fixed
Annual
LTSP
Chris Tyler
£’000
100%
66%
18%
16%
847
Maximum
33%
27%
40%
28%
REMUNERATION POLICY AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 AGM
Porvair plc Annual Report & Accounts 2022
Governance
79
Fees
Cash fees normally paid on a monthly basis.
Fees are reviewed annually.
Non-Executive Directors receive a fixed annual fee plus expenses
reimbursement, which reflects their time commitment to the business and
comparatives from similar sized quoted companies.
Non-Executives are not eligible for any bonus or incentive or pension schemes.
No additional fees are paid for acting as Senior Non-Executive Director or for
chairing committees but the Board reserves the right to introduce these 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
93
Other Non-Executive Directors
38
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.
Discussions were held with a number of shareholders prior to the 2021 AGM to explain some of the terms of the proposed
remuneration policy.
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 74 to 77.
REMUNERATION POLICY AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 AGM
Porvair plc Annual Report & Accounts 2022
Governance
80
Remuneration report
continued
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 pages 74 to 77.
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 Long Term Share Plan 2008 and 2018 and Porvair plc SAYE share option plan 2014.
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 Committee 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 AS PRESENTED TO AND APPROVED AT THE GROUP’S 2021 AGM
Porvair plc Annual Report & Accounts 2022
Governance
81
Opinion
We have audited the financial statements of Porvair plc (the ‘parent
company’) and its subsidiaries (the ‘Group’) for the year ended 30
November 2022, 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
2022 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: £936,000 (2021: £725,000)
•
Performance materiality: £702,000 (2021: £544,000)
Parent Company
•
Overall materiality: £331,000 (2021: £226,000)
•
Performance materiality: £248,000 (2021: £170,000)
Scope
Our full scope and specific audit procedures covered
92% of revenue, 82% of total assets and 99% 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.
Porvair plc Annual Report & Accounts 2022
Financial statements
82
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 entered into in the year ended 30 November 2022.
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 £4.0 million as at 30 November 2022, £3.7 million of which relates
to warranties and £2.5 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 with individuals in the operational
teams of 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
£936,000 (2021: £725,000)
5% (2021: 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.
£702,000 (2021: £544,000)
75% of overall materiality
Misstatements in excess of £47,000 and
misstatements below that threshold that, in our
view, warranted reporting on qualitative grounds.
Parent company
£331,000 (2021: £226,000)
0.4% (2021: 0.3%) of net assets
Net assets is considered to be the most appropriate
benchmark for the parent company as it is primarily
a holding company.
£248,000 (2021: £170,000)
75% of overall materiality
Misstatements in excess of £16,500 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 2022
Financial statements
83
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. The Group consists of 19 components, located in the following countries:
•
UK
•
USA
•
The Netherlands
•
Germany
•
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. Six components were subject to a full scope audit performed by the Group auditor.
In addition, five 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 four 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
6
53%
58%
53%
Targeted audit procedures
5
39%
24%
46%
Reduced scope review procedures
8
8%
18%
1%
Total
19
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 Covid-19 and inflation 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.
Porvair plc Annual Report & Accounts 2022
Financial statements
84
Independent Auditor’s report to the members of Porvair plc
continued
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 set out on page 27;
•
Directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate set
out on page 26;
•
Director’s statement on whether it has a reasonable expectation that the Group will be able to continue in operation and meets its liabilities set
out on page 27;
•
Directors’ statement on fair, balanced and understandable set out on page 58;
•
Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 22;
•
Section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on pages 60
and 61; and
•
Section describing the work of the audit committee set out on pages 63 and 64.
Porvair plc Annual Report & Accounts 2022
Financial statements
85
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on pages 57 and 58, 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; and
•
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:
Porvair plc Annual Report & Accounts 2022
Financial statements
86
Independent Auditor’s report to the members of Porvair plc
continued
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 3 years, covering the years ended 30 November 2020 to 30 November 2022.
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
27 January 2023
Risk
Audit procedures performed by the audit engagement team:
For projects revenue procedures included:
•
Evaluating the application of IFRS 15 to the contract, including the identification of performance obligations.
•
Assessing and challenging the assumptions 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 obtaining copies of signed GDNs and evidence from third party distributors to
confirm that the sale has been recognised at the date of delivery.
•
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 2022
Financial statements
87
88
Porvair plc Annual Report & Accounts 2022
Financial statements
Consolidated income statement
For the year ended 30 November
Note
2022
£’000
2021
£’000
Continuing operations
Revenue
2,3
Cost of sales
(113,597 )
(99,353 )
Gross profit
Distribution costs
(2,759 )
(2,391 )
Administrative expenses
(36,409 )
(28,724 )
Adjusted operating profit
2,3
Adjustments:
Amortisation of acquired intangible assets
2
(688 )
(740 )
Other acquisition-related adjustments
2
(98 )
Impairment of assets and restructuring costs
2
(542 )
Paycheck Protection Program
2
Operating profit
2,3
Finance costs
6
(1,072 )
(1,084 )
Profit before tax
3,4
Adjusted income tax expense
(4,169 )
(3,210 )
Adjustments:
Tax effect of adjustments to operating profit
2
Income tax expense
7
(4,024 )
(2,814 )
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
2022
£’000
2021
£’000
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss:
Actuarial gain in defined benefit pension plan net of tax
Items that may be subsequently reclassified to profit or loss:
Exchange gains on translation of foreign subsidiaries
Total other comprehensive income for the year
Total comprehensive income for the year
89
Porvair plc Annual Report & Accounts 2022
Financial statements
Consolidated balance sheet
Company registered number 01661935
As at 30 November
Note
2022
£’000
2021
£’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
(27,881 )
(21,702 )
Current tax liabilities
(309 )
(853 )
Lease liabilities
11
(2,156 )
(2,207 )
Derivative financial instruments
13
(319 )
(20 )
Provisions
21
(3,692 )
(4,372 )
(34,357 )
(29,154 )
Net current assets
Non-current liabilities
Borrowings
18
(5,217 )
Deferred tax liability
19
(2,811 )
(2,425 )
Retirement benefit obligations
20
(9,816 )
(12,602 )
Other payables
(945 )
Lease liabilities
11
(9,316 )
(10,024 )
Provisions
21
(328 )
(296 )
(22,271 )
(31,509 )
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 88 to 125 were approved by the Board of Directors on 27 January 2023 and were signed on its
behalf by:
B D W Stocks
J A Mills
90
Porvair plc Annual Report & Accounts 2022
Financial statements
Consolidated cash flow statement
For the year ended 30 November
Note
2022
£’000
2021
£’000
Cash flows from operating activities
Cash generated from operations
24
Interest paid
(403 )
(305 )
Tax paid
(4,118 )
(2,215 )
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of subsidiaries (net of cash acquired)
17
(1,000 )
(3,968 )
Purchase of property, plant and equipment
10
(4,826 )
(3,182 )
Purchase of intangible assets
12
(61 )
(47 )
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
(5,870 )
(7,188 )
Cash flows from financing activities
Proceeds from issue of ordinary shares
22
Purchase of Employee Benefit Trust shares
(749 )
(716 )
Decrease in borrowings
(4,986 )
(3,687 )
Dividends paid to shareholders
9
(2,478 )
(2,345 )
Repayments of lease liabilities
(2,503 )
(2,292 )
Net cash used in financing activities
(10,165 )
(8,888 )
Net increase in cash and cash equivalents
Exchange gains/(losses) on cash and cash equivalents
(149 )
(121 )
Cash and cash equivalents at 1 December
Cash and cash equivalents at 30 November
16
Reconciliation of net cash flow to movement in net debt
2022
£’000
2021
£’000
Net debt at 1 December
(2,006)
(8,735)
Increase in cash and cash equivalents
2,242
28
Decrease in borrowings
4,986
3,687
Decrease in lease liabilities
1,194
1,147
Paycheck Protection Program loan waiver
–
1,337
Effects of exchange rate changes
409
530
Net cash/(debt) at 30 November
6,825
(2,006)
Net cash and bank debt
18,297
10,225
Lease liabilities
(11,472)
(12,231)
Net cash/(debt) at 30 November
6,825
(2,006)
91
Porvair plc Annual Report & Accounts 2022
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 2020
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Purchase of own shares (held in trust)
(716 )
(716 )
Issue of ordinary share capital
22
Share-based payments charge (net of tax)
Dividends paid
9
(2,345 )
(2,345 )
At 30 November 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 charge (net of tax)
Dividends paid
9
(2,478 )
(2,478 )
At 30 November 2022
92
Porvair plc Annual Report & Accounts 2022
Financial statements
Exchange. The Company is registered in England and Wales and its registered office is 7 Regis Place, Bergen Way, King’s Lynn,
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 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 126 to 135.
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 cost of acquisition over the fair values of the 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 with those used by the Group.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to
the fair value of the contingent consideration that is deemed to be an asset or liability is 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.
Critical 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) Critical judgements in applying the Group’s accounting policies
In the course of preparing the financial statements, no judgements have been made in the process of applying the Group’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
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, 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:
•
Pension 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 2022 have been calculated
and are given in note 20.
93
Porvair plc Annual Report & Accounts 2022
Financial statements
•
Provisions for project filtration systems
The Group holds warranty provisions in relation to certain project filtration contracts which are either in the commissioning phase or
have yet to reach the commissioning phase. 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 judgements taken at the year end.
•
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, which is a critical assumption. As an example, if the
success rate of the unvested share options were increased/decreased by 10% then the share option charge would be £52,000
higher/lower.
The Group has considered climate change as part of our cash flow projections within going concern, impairment assessment and
viability, and the impact of climate change is not deemed to have a significant impact on these assessments currently and therefore
they are not deemed to be a key source of estimation uncertainty. The Group will continue to monitor the impacts of climate change
over the coming years.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the
identifiable assets and 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 reviewed for impairment annually, and 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.
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 represents sales net of estimates for variable consideration and
excluding value added tax and other sales and related taxes. Revenue is recognised on the transfer of control over promised goods
or services in an amount that reflects the consideration specified in a contract with a customer.
For the majority of transactions across all three divisions, revenue is recognised at the agreed transaction price 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.
For certain contracts within the Aerospace & Industrial division, multiple distinct performance obligations may exist in a contract.
Where multiple distinct performance obligations are identified, the total transaction price is allocated to each of the distinct
performance obligations in proportion to their relative stand-alone selling prices. Some of the products and services are bespoke
in nature and, as a consequence, there may not be an observable stand-alone selling price. Where this is the case, a stand-alone
selling price is typically determined on the basis of expected costs plus contract margin. Revenue is recognised in respect of each
of the distinct performance obligations either at a point in time when the performance obligation is satisfied, or in a limited number of
instances, over time if the products have been determined to be bespoke in nature with no alternative use and the Group has an
enforceable right to payment for performance completed to date. Where revenue is recognised over time, this is on an input basis as
the work progresses, with progress measured by reference to actual costs incurred as a proportion of the total costs expected to be
incurred under the contract.
For certain service and maintenance contracts within the Laboratory division, revenue is recognised in relation to these performance
obligations over time as the services are performed in line with the contractual terms. The associated performance obligations are
deemed to accrue evenly across the contractual term and revenue is recognised over time, as the client simultaneously receives and
consumes the benefits provided by the Group.
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 Group’s incremental borrowing rate,
being the rate that the Group 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 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.
1 Summary of significant accounting policies
continued
94
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
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.
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.
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.
Government grants
Government grants for the development of new products are recognised over the periods necessary to match them with the related
costs and are deducted in reporting the related expense.
The US Paycheck Protection Program (“PPP”) loan was previously recognised as a liability until the loan was waived, upon which it was
credited to the income statement in 2021.
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 that are relevant to the period. Tax provisions are based
on management’s interpretation of country specific tax laws and the likelihood of any tax risks. Management uses professional firms,
in-house knowledge and previous experience when calculating tax and assessing these risks.
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. 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 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.
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.
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.
1 Summary of significant accounting policies
continued
95
Porvair plc Annual Report & Accounts 2022
Financial statements
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
2.5 – 3%
Plant, machinery and equipment
10 – 33%
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.
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.
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, and subsequently at amortised cost. 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. Useful lives range between 3 – 10 years.
Software
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.
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 calculated
using the weighted average method. 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.
1 Summary of significant accounting policies
continued
96
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
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 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 historical 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) Lease liabilities
Lease liabilities are recorded at the present value of lease payments. Leases are discounted at the Group’s incremental borrowing rate,
being the rate that the Group 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.
(f) 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 which are designated and effective as hedges of future cash flows are recognised in equity
in the hedging reserve and in other comprehensive income and are reclassified to profit or loss on maturity of the derivative. Changes
in the fair value of foreign currency derivatives which are ineffective or which do not meet the criteria for hedge accounting are
recognised immediately in the consolidated income statement. 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.
1 Summary of significant accounting policies
continued
97
Porvair plc Annual Report & Accounts 2022
Financial statements
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 reversals 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.
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, amendments and interpretations
(a) Standards, amendments and interpretations effective for the first time in the year ended 30 November 2022:
No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 December
2021, have had a material impact on the Group.
(b) Standards, amendments and interpretations that are not yet effective and have not been early adopted:
The IASB has published a number of amendments to existing standards which are not yet effective, but will be mandatory for the
Group’s accounting periods beginning on or after 1 December 2022. An assessment of the impact of these is set out below:
•
Amendment to IFRS 9 –
Fees in the ’10 per cent’ Test for Derecognition of Financial Liabilities
•
Amendments to IAS 37 –
Onerous Contracts – Cost of Fulfilling a Contract
•
Amendments to IAS 16 –
Property, Plant and Equipment: Proceeds before Intended Use
•
Amendment to IFRS 1 –
Subsidiary as a First-time Adopter
•
Amendment to IAS 41 –
Taxation in Fair Value Measurements
•
Amendments to IFRS 3 –
Updating a Reference to the Conceptual Framework
The Group does not anticipate that the adoption of these amendments will have a material effect on its financial statements. There are
no new standards or interpretations which are expected to have a material effect on the Group’s financial statements for the year
ending 30 November 2023.
1 Summary of significant accounting policies
continued
98
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
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
2022
£’000
2021
£’000
Growth
%
Aerospace & Industrial
Revenue at constant currency
61,864
54,888
13
Exchange
2,861
888
Revenue as reported
64,725
55,776
16
Laboratory
Underlying revenue
52,737
46,863
13
Acquisition
6,639
5,428
Revenue at constant currency
59,376
52,291
14
Exchange
3,308
885
Revenue as reported
62,684
53,176
18
Metal Melt Quality
Revenue at constant currency
40,236
36,225
11
Exchange
4,930
1,133
Revenue as reported
45,166
37,358
21
Group
Underlying revenue
154,837
137,976
12
Acquisition
6,639
5,428
Revenue at constant currency
161,476
143,404
13
Exchange
11,099
2,906
Revenue as reported
172,575
146,310
18
Revenue at constant currency is derived from translating overseas subsidiaries results at budgeted fixed exchange rates. In 2022 and
2021, the rates used were US$1.40:£1 and €1.20:£1, compared with reported rates of US$1.25:£1 (2021:US$1.37:£1) and €1.18:£1 (2021:
€1.16:£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 Kbio, which was acquired in February 2021.
Alternative profit measures
A reconciliation of the Group’s adjusted performance measures to the reported IFRS measures is presented below:
2022
2021
Adjusted
£’000
Adjustments
£’000
Reported
£’000
Adjusted
£’000
Adjustments
£’000
Reported
£’000
Operating profit
20,498
(688)
19,810
15,885
(43)
15,842
Finance costs
(1,072)
–
(1,072)
(1,084)
–
(1,084)
Profit before tax
19,426
(688)
18,738
14,801
(43)
14,758
Income tax expense
(4,169)
145
(4,024)
(3,210)
396
(2,814)
Profit for the year
15,257
(543)
14,714
11,591
353
11,944
99
Porvair plc Annual Report & Accounts 2022
Financial statements
An analysis of adjusting items is given below:
2022
£’000
2021
£’000
Affecting operating profit:
Amortisation of acquired intangible assets
(688)
(740)
Other acquisition-related adjustments
–
(98)
Impairment of assets and restructuring costs
–
(542)
Paycheck Protection Program
–
1,337
(688)
(43)
Affecting tax:
Tax effect of adjustments to operating profit
145
396
Total adjusting items
(543)
353
Adjusted operating profit excludes:
•
The amortisation of intangible assets arising on acquisition of businesses of £0.7 million (2021: £0.7 million);
•
Other acquisition-related costs of £nil (2021: £0.1 million in relation to the acquisition of Kbio);
•
Covid-19 related impairment of assets and restructuring costs of £nil (2021: £0.5 million, principally within the Aerospace & Industrial
division); and
•
Monies received under the US Paycheck Protection Program of £nil (2021: £1.3 million, for proceeds received in relation to eligible
costs incurred within the US operations during the covid pandemic).
The 2021 tax effect of adjustments to operating profit includes a credit in relation to eligible costs incurred in 2020, associated with the
US Paycheck Protection Program and previously treated as disallowed for tax. The £1.3 million Paycheck Protection Program income in
2021 does not attract US tax. These items combined contribute to the tax credit on net adjusting items.
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% (2021: 13%) 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 36% (2021: 31%) 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 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 2022, 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
100
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
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
The segment results for the year ended 30 November 2021 are as follows:
30 November 2021
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Total segment revenue
55,918
54,965
37,358
–
148,241
Inter-segment revenue
(142)
(1,789)
–
–
(1,931)
Revenue
55,776
53,176
37,358
–
146,310
Adjusted operating profit/(loss)
4,399
9,649
5,074
(3,237)
15,885
Adjustments:
Amortisation of acquired intangible assets
2
(396)
(344)
–
–
(740)
Other acquisition-related adjustments
2
–
–
–
(98)
(98)
Impairment of assets and restructuring costs
2
(542)
–
–
–
(542)
Paycheck Protection Program
2
407
295
635
–
1,337
Operating profit/(loss)
3,868
9,600
5,709
(3,335)
15,842
Finance costs
6
–
–
–
(1,084)
(1,084)
Profit/(loss) before tax
3,868
9,600
5,709
(4,419)
14,758
3 Segment information
continued
101
Porvair plc Annual Report & Accounts 2022
Financial statements
Other segment items included in the income statement are as follows:
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
30 November 2021
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Depreciation – property, plant and equipment
10
1,275
772
539
3
2,589
Impairment – property, plant and equipment
10
195
–
–
–
195
Amortisation – intangible assets
12
528
513
32
–
1,073
Depreciation – right-of-use assets
11
1,237
596
258
47
2,138
Impairment – right-of-use assets
11
150
–
–
–
150
3,385
1,881
829
50
6,145
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)
The segment assets and liabilities at 30 November 2021 are as follows:
30 November 2021
Note
Aerospace &
Industrial
£’000
Laboratory
£’000
Metal Melt
Quality
£’000
Central
£’000
Group
£’000
Segmental assets
70,038
51,720
30,087
2,322
154,167
Cash and cash equivalents
16
–
–
–
15,442
15,442
Total assets
70,038
51,720
30,087
17,764
169,609
Segmental liabilities
(19,242)
(12,675)
(5,747)
(5,180)
(42,844)
Retirement benefit obligations
20
–
–
–
(12,602)
(12,602)
Borrowings
18
–
–
–
(5,217)
(5,217)
Total liabilities
(19,242)
(12,675)
(5,747)
(22,999)
(60,663)
3 Segment information
continued
102
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
Geographical analysis
2022
2021
Revenue
By
destination
£’000
By
origin
£’000
By
destination
£’000
By
origin
£’000
United Kingdom
17,715
50,018
14,886
42,652
Continental Europe
35,898
21,695
31,534
25,873
United States of America
80,537
96,370
64,673
71,695
Other NAFTA
3,592
–
2,647
–
South America
2,409
–
2,642
–
Asia
30,785
4,492
28,688
6,090
Africa
1,639
–
1,240
–
172,575
172,575
146,310
146,310
Total revenue comprises revenue recognised at a point in time of £170.3 million (2021: £144.9 million), revenue recognised over time of
£2.2 million (2021: £1.3 million) and royalties of £0.1 million (2021: £0.1 million). No customer accounts for greater than 10% of revenue in
2021 or 2022.
Non-current assets
2022
£’000
2021
£’000
United Kingdom
33,411
33,346
Continental Europe
15,609
15,978
Americas
63,287
56,593
Asia
48
435
Unallocated deferred tax asset
1,046
1,821
113,401
108,173
Capital expenditure, including right-of-use assets
2022
£’000
2021
£’000
United Kingdom
2,419
2,202
Continental Europe
533
423
Americas
3,102
1,293
Asia
66
60
6,120
3,978
4 Profit before income tax
The following items have been included in arriving at profit before income tax:
2022
£’000
2021
£’000
Staff costs (note 5)
57,799
45,332
Inventories – cost of inventories recognised as an expense (included in cost of sales)
61,332
56,031
Net realised foreign exchange losses/(gains)
417
(342)
Depreciation on property, plant and equipment – owned
2,899
2,589
Depreciation on right-of-use assets
2,212
2,138
Impairment charge on property, plant and equipment – owned
186
195
Impairment of right-of-use assets
14
150
Amortisation of intangible assets
946
1,073
Loss on sale of property, plant and equipment and intangible assets
–
68
Lease rentals payable:
– Plant and machinery
38
9
– Property
50
4
Repairs and maintenance on property, plant and equipment
2,432
1,713
Trade receivables impairment
278
226
Research and development expenditure
3,460
3,104
3 Segment information
continued
103
Porvair plc Annual Report & Accounts 2022
Financial statements
The total remuneration of the Group’s Auditor, RSM UK Audit LLP, for services provided to the Group is analysed below:
2022
£’000
2021
£’000
Fees payable to Company’s Auditor and its associates for audit of parent company,
subsidiaries and consolidated financial statements
100
100
Interim review
25
25
Fees payable to Company’s Auditor and its associates for other services:
– the audit of Company’s subsidiaries
180
200
305
325
5 Employee benefit expense
The average monthly number of staff, including Executive Directors, employed during the year is detailed below:
2022
Average
number
2021
Average
number
Number
Aerospace & Industrial
425
394
Laboratory
354
338
Metal Melt Quality
181
172
Central
8
8
968
912
2022
£’000
2021
£’000
Staff costs
Wages and salaries
46,483
37,719
Social security costs
7,329
4,970
Other pension costs
2,930
2,396
Share-based payments
1,057
247
57,799
45,332
Detailed disclosures of Directors’ emoluments and interests in share options are shown in the Remuneration Report on pages 65 to 72.
The key management comprise the Directors of Porvair plc and their remuneration is disclosed in note 28.
6 Finance costs
Note
2022
£’000
2021
£’000
Interest payable on bank loans and overdrafts
376
309
Interest payable on lease liabilities
349
371
Unwinding of discount on provisions and contingent consideration
166
191
Pension scheme finance expense
20
181
213
1,072
1,084
4 Profit before income tax
continued
104
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
7 Income tax expense
Note
2022
£’000
2021
£’000
Current tax
UK Corporation tax
955
677
Adjustment in respect of prior periods – UK
(277)
26
Overseas tax
2,623
2,037
Adjustment in respect of prior periods – US
86
17
3,387
2,757
Deferred tax
Origination and reversal of temporary differences – UK
217
137
Origination and reversal of temporary differences – overseas
(21)
28
Adjustment in respect of prior periods – UK
225
52
Adjustment in respect of prior periods – US
(140)
(412)
Effect of change in deferred tax rates
356
252
19
637
57
4,024
2,814
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:
2022
£’000
2021
£’000
Profit before tax
18,738
14,758
Tax at the UK Corporation tax rate of 19% (2021: 19%)
3,560
2,804
Current tax adjustments in respect of prior periods
(191)
43
Deferred tax adjustments in respect of prior periods
85
(360)
Deferred tax on share-based payments within the income statement
45
(120)
Tax effect of income not subject to tax
(283)
(254)
Tax effect of expenses not deductible in determining taxable profit
209
124
Effect of change in deferred tax rates
356
252
Effect of different tax rates of subsidiaries operating in other jurisdictions
243
325
Tax charge
4,024
2,814
In addition to the amount charged to the income statement, the following tax was charged/(credited) direct to equity/comprehensive
income:
2022
£’000
2021
£’000
Deferred tax on share-based payments (direct to equity)
26
88
Deferred tax on actuarial gains/(losses) on the pension fund (direct to comprehensive income)
397
(179)
Current tax on share-based payments (direct to equity)
(9)
14
414
(77)
The Group earns its profits in the UK and overseas. The standard rate of Corporation tax in the UK was 19% during the year to
30 November 2022. Accordingly, the theoretical effective tax rate applied to the Group’s profits for this accounting year is 19%.
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. 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 (2021: £1.1 million) for uncertainties relating to the interpretation of tax legislation in the
Group’s operating territories.
105
Porvair plc Annual Report & Accounts 2022
Financial statements
8 Earnings per share (EPS)
2022
2021
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
14,714
11,944
Shares in issue
46,211,979
46,170,094
Shares owned by the Employee Benefit Trust
(319,288)
(198,822)
Basic EPS
14,714
45,892,691
32.1
11,944
45,971,272
26.0
Dilutive share options outstanding
–
18,598
(0.1)
–
38,370
–
Diluted EPS
14,714
45,911,289
32.0
11,944
46,009,642
26.0
In addition to the above, the Group also calculates an earnings per share 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 earnings per share:
2022
2021
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
14,714
11,944
Adjusting items – (note 2)
543
(353)
Adjusted profit –
attributable to owners of the parent
15,257
11,591
Adjusted Basic EPS
15,257
45,892,691
33.2
11,591
45,971,272
25.2
Adjusted Diluted EPS
15,257
45,911,289
33.2
11,591
46,009,642
25.2
9 Dividends per share
2022
2021
Per share
Pence
£’000
Per share
Pence
£’000
Final dividend paid – in respect of prior year
3.5
1,606
3.3
1,517
Interim dividend paid – in respect of current year
1.9
872
1.8
828
5.4
2,478
5.1
2,345
The Directors recommend the payment of a final dividend of 3.8 pence per share (2021: 3.5 pence per share) to be paid on 7 June
2023 to shareholders on the register on 5 May 2023; the ex-dividend date is 4 May 2023. This makes a total dividend for the year of
106
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
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 2020
12,549
858
43,027
56,434
Reclassification
145
(1,242)
1,097
–
Additions
391
1,082
1,709
3,182
Acquisitions
–
–
143
143
Disposals
(97)
–
(2,387)
(2,484)
Exchange
100
1
189
290
At 30 November 2021
13,088
699
43,778
57,565
Accumulated depreciation
At 1 December 2020
(4,022)
–
(31,696)
(35,718)
Charge for year
(351)
–
(2,238)
(2,589)
Impairment charge
–
–
(195)
(195)
Disposals
88
–
2,319
2,407
Exchange
(35)
–
(200)
(235)
At 30 November 2021
(4,320)
–
(32,010)
(36,330)
Net book value at 30 November 2021
8,768
699
11,768
21,235
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
107
Porvair plc Annual Report & Accounts 2022
Financial statements
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 2020
14,161
649
14,810
New leases
165
208
373
Acquisitions
376
–
376
Exit from leases
(68)
(47)
(115)
Reclassifications
(7)
7
–
Exchange
(190)
(20)
(210)
At 30 November 2021
14,437
797
15,234
Accumulated depreciation
At 1 December 2020
(1,900)
(148)
(2,048)
Charge for year
(1,917)
(221)
(2,138)
Impairment charge
(150)
–
(150)
Exit from leases
68
41
109
Exchange
3
4
7
At 30 November 2021
(3,896)
(324)
(4,220)
Net book value at 30 November 2021
10,541
473
11,014
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
108
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
Lease liabilities
The movement in the lease liability is set out below:
2022
£’000
2021
£’000
At 1 December
(12,231)
(13,616)
New leases
(1,250)
(373)
Acquisitions
–
(407)
Exit from leases
290
6
Lease repayments
2,503
2,292
Interest on lease liabilities
(349)
(371)
Exchange
(435)
238
Net book value at 30 November
(11,472)
(12,231)
Analysed as:
2022
£’000
2021
£’000
Repayable within one year
(2,156)
(2,207)
Repayable after one year
(9,316)
(10,024)
(11,472)
(12,231)
Lease liabilities mature as follows:
Minimum lease liabilities falling due
2022
£’000
2021
£’000
Within one year – land and buildings
(2,303)
(2,233)
Within one year – property, plant and equipment
(164)
(105)
Total within one year
(2,467)
(2,338)
Between one and five years – land and buildings
(5,637)
(6,406)
Between one and five years – property, plant and equipment
(140)
(75)
Total between one and five years
(5,777)
(6,481)
Greater than five years – land and buildings
(4,502)
(4,874)
Greater than five years – property, plant and equipment
–
–
Total greater than five years
(4,502)
(4,874)
Total commitment
(12,746)
(13,693)
Less: finance charges included above
1,274
1,462
Net present value of lease liabilities
(11,472)
(12,231)
11 Leases – Right-of-use assets and lease liabilities
continued
109
Porvair plc Annual Report & Accounts 2022
Financial statements
1
12 Goodwill and other intangible assets
Goodwill
£’000
Development
expenditure
capitalised
£’000
Software
capitalised
£’000
Trademarks,
know–how
and other
intangibles
£’000
Total
£’000
Net book amount at 30 November 2020
64,871
82
818
4,268
70,039
Additions
–
–
47
–
47
Acquisitions
3,089
–
–
2,232
5,321
Amortisation charges
–
(47)
(226)
(800)
(1,073)
Exchange
(114)
(2)
(22)
(93)
(231)
Net book amount at 30 November 2021
67,846
33
617
5,607
74,103
At 30 November 2021
Cost
86,489
896
1,800
9,645
98,830
Accumulated amortisation and impairment
(18,643)
(863)
(1,183)
(4,038)
(24,727)
Net book amount
67,846
33
617
5,607
74,103
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
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 £0.9 million (2021: £1.1 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 – £1.2 million (2021: £1.3 million) – with a remaining amortisation period of 5 years.
•
Customer list of the Royal Dahlman Group – £0.8 million (2021: £0.9 million) – with a remaining amortisation period of 11 years.
•
Customer relationships of Kbio – £1.8 million (2021: £2.0 million) – with a remaining amortisation period of 8 years.
110
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
Impairment tests for goodwill
Goodwill is allocated to the Group’s cash generating units (“CGUs”) identified according to its operating segment.
A segment level summary of the goodwill allocation is presented below.
2022
2021
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
21,624
30,077
20,631
72,332
28,935
21,844
17,067
67,846
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 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%
Key assumptions used for value-in-use calculations in 2021:
Aerospace & Industrial
Laboratory
Metal Melt
Quality
US
UK
Continental
Europe
US
UK
Continental
Europe
US
Budgeted gross margin
28%
25%
25%
27%
35%
35%
25%
Long-term growth rate
2%
2%
2%
2%
2%
2%
2%
Pre-tax discount rate
10.2%
10.0%
7.2%
10.7%
10.6%
7.8%
10.2%
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 £7.6 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 3.2% to 16.0%. 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 2022 (2021: £nil).
13 Derivative financial instruments
2022
2021
Assets
£’000
Liabilities
£’000
Assets
£’000
Liabilities
£’000
Forward foreign exchange contracts – current
554
(319)
–
(20)
The gain recognised in the income statement in the year for non-hedged derivatives amounted to £255,000 (2021: loss £43,000).
The notional principal amounts of the outstanding forward foreign exchange contracts at 30 November 2022 are US$13.0 million
(2021: US$1.0 million) and €0.4 million (2021: €0.3 million).
12 Goodwill and other intangible assets
continued
111
Porvair plc Annual Report & Accounts 2022
Financial statements
14 Inventories
2022
£’000
2021
£’000
Raw materials
9,737
7,040
Work in progress
10,806
8,636
Finished goods
10,430
8,974
30,973
24,650
The Group has recognised a charge in the income statement of £0.9 million (2021: £1.6 million) for the write-down of its inventories
during the year ended 30 November 2022. The Group has utilised provisions of £0.4 million (2021: £0.1 million) during the year ended
30 November 2022.
15 Trade and other receivables
2022
£’000
2021
£’000
Current
Trade receivables
23,803
20,536
Less: provision for impairment
(1,444)
(1,113)
Trade receivables – net
22,359
19,423
Other debtors
773
933
Prepayments
1,339
988
24,471
21,344
There is no difference between the fair value of trade and other receivables and their carrying value.
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 £22.4 million (2021: £19.4 million).
Trade receivables are assessed for impairment as described in note 1. On that basis, the loss allowance as at 30 November 2022 was
determined as follows for trade receivables (trade receivables are written off where there is no reasonable expectation of recovery;
indicators that there is no reasonable expectation of recovery include a failure to make contractual payments for a period greater than
180 days):
2022
2021
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
18,469
–
–
15,189
–
–
0–30 days
–
3,264
–
–
2,957
156
31–60 days
–
344
88
–
687
114
61–90 days
–
108
88
–
239
67
91–180 days
–
174
271
–
148
20
> 180 days
–
–
997
–
203
756
Total
18,469
3,890
1,444
15,189
4,234
1,113
112
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
Movements on the Group provision for impairment of trade receivables are as follows:
2022
£’000
2021
£’000
At 1 December
1,113
890
Provision for receivables impairment
612
250
Receivables written off during the year as uncollectable
(334)
(24)
Exchange
53
(3)
At 30 November
1,444
1,113
Foreign exchange risk in relation to trade receivables is disclosed in note 25.
16 Cash and cash equivalents
2022
£’000
2021
£’000
Cash at bank and in hand
18,297
15,442
The credit risk associated with cash and cash equivalents is mitigated by holding funds with banks with high credit ratings from AA- to A
(2021: AA- to A) as assigned by international credit rating agencies.
The Group’s cash balances are denominated in the following currencies:
2022
£’000
2021
£’000
Pound Sterling
7,043
4,129
US dollar
8,156
6,469
Euro
2,508
3,972
Other
590
872
18,297
15,442
17 Trade and other payables
2022
£’000
2021
£’000
Amounts falling due within one year:
Trade payables
10,707
8,286
Taxation and social security
707
897
Other payables
2,451
1,828
Accruals and contract liabilities
14,016
10,691
27,881
21,702
Included within ‘Accruals and contract liabilities’ are contract liabilities of £3.1 million (2021: £2.2 million).
Included within ‘Other payables’ is contingent consideration of £0.9 million (2021: £0.9 million) in relation to Kbio, which was acquired in
February 2021. Contingent consideration paid for Kbio during the year was £1.0 million (2021: £1.0 million).
15 Trade and other receivables
continued
113
Porvair plc Annual Report & Accounts 2022
Financial statements
A summary of deferred and contingent consideration on acquisitions is as follows:
2022
£’000
2021
£’000
At 1 December
1,810
–
Deferred consideration
–
1,274
Contingent consideration
–
2,647
Cash paid in year
(1,000)
(2,274)
Unwind of discount
135
163
At 30 November
945
1,810
2022
£’000
2021
£’000
Included within other payables:
– Contingent consideration – current
945
865
– Contingent consideration – non-current
–
945
945
1,810
18 Borrowings
2022
£’000
2021
£’000
Secured multi-currency revolving credit facility
–
5,217
Bank loans of the Group are repayable as follows:
2022
£’000
2021
£’000
Two to five years
–
5,217
–
5,217
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 facility has a margin
over EURIBOR ranging between 2.2% – 2.8%, depending on leverage, and a non-utilisation fee of 0.76%. The margin may be adjusted
depending upon achievement of ESG metrics.
The financial covenants continue to 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 of the Group’s assets in the UK and wider Europe.
The loans are shown net of issue costs of £0.3 million (2021: £0.4 million) which are being amortised over the life of the loan
arrangements.
At 30 November 2022, the Group had €27.7 million/£23.9 million (2021: €21.5 million/£18.3 million) of unused credit facility and an
unutilised £2.5 million (2021: £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 2020
(3,664)
755
(466)
162
2,988
(225)
Acquisitions
–
–
(424)
–
–
(424)
(Charged)/credited to income statement
(327)
331
27
120
(208)
(57)
Reclassification
2
(2)
–
–
–
–
Credited to equity
–
–
–
(88)
–
(88)
Credited to comprehensive income
–
–
–
–
179
179
Exchange
(26)
15
22
–
–
11
At 30 November 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)
Credited 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)
17 Trade and other payables
continued
114
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
The net deferred tax liability of £1.8 million (2021: £0.6 million) comprises £2.4 million deferred tax liabilities (2021: £2.0 million) of Group
entities based in the USA, £0.4 million deferred tax liabilities (2021: £0.4 million) of Group entities based in Continental Europe, and
£1.0 million deferred tax assets (2021: £1.8 million) of Group entities based in the UK.
At the balance sheet date, the Group has unused tax losses of £6.8 million (2021: £7.0 million) available for offset against future profits.
No deferred tax asset has been recognised in respect of such losses (2021: £0.4 million). In 2021, no tax asset was recognised in
respect of the remaining losses of £6.6 million, as it was not considered probable that there would be taxable profits available to offset
in the reasonably foreseeable future.
20 Retirement benefit obligations
2022
£’000
2021
£’000
Defined benefit Plan
9,641
12,602
Additional defined benefit obligations
175
–
9,816
12,602
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 2022, this amounted to £0.6
million (2021: £0.4 million). In 2022, the Group also made payments of £0.6 million (2021: £0.5 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 £1.1 million
(2021: £1.0 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.
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 in the year, 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. 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 £0.6 million (2021: £0.9 million) and the funding via employer contributions was £2.1 million (2021:
£2.3 million).
The Group expects to make contributions of £2.4 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 2022.
19 Deferred tax
continued
115
Porvair plc Annual Report & Accounts 2022
Financial statements
Balance sheet
The financial assumptions used to calculate Plan liabilities under IAS 19 were:
2022
2021
Valuation method
Projected
Unit
Projected
Unit
Discount rate
4.3%
1.6%
RPI inflation rate
3.2%
3.3%
CPI inflation rate
2.7%
2.6%
General salary increases
3.0%
2.5%
Rate of increase of pensions in payment:
– pre 6 April 1997
0.0%
0.0%
– post 5 April 1997 to pre 6 April 2005
2.6%
2.6%
– post 5 April 2005
1.8%
2.1%
Rate of increase for deferred pensioners
2.7%
2.6%
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
(2021: 1.25% per annum). These assumptions translate into an average life expectancy in years for a pensioner retiring at age 65:
2022
Years
2021
Years
Retiring at the end of the reporting period:
– Male
19.7
19.9
– Female
21.9
22.0
Retiring 15 years after the end of the reporting period:
– Male
20.5
20.7
– Female
23.0
23.1
The Plan’s membership numbers as at the year end are as follows:
2022
Number of
members
2021
Number of
members
Active
27
29
Deferred
202
219
Pensioner
274
262
503
510
Sensitivities have been calculated by valuing the Plan’s defined benefit obligation at 30 November 2022 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 4.5%
Increase of 4.6%
Inflation rate
0.1%
Increase of 1.8%
Decrease of 2.6%
Life expectancy
1 year
Increase of 12.2%
Decrease of 13.3%
The assets in the Plan are:
Value at
30 November
2022
£’000
Value at
30 November
2021
£’000
Equities
4,171
13,377
Bonds
2,448
2,502
Gilts
3,311
5,222
Liability driven investment
7,348
10,001
Infrastructure
3,974
3,749
Other
3,217
2,120
Fair value of Plan assets
24,469
36,971
Present value of unfunded obligations
(34,110)
(49,573)
Deficit in the Plan (excluding deferred tax)
(9,641)
(12,602)
20 Retirement benefit obligations
continued
116
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
The analysis of movement in the deficit in the Plan for the year is as follows:
2022
£’000
2021
£’000
Deficit at 1 December
(12,602)
(15,119)
Contributions paid
2,111
2,254
Current service cost
(232)
(292)
Administration expense
(324)
(358)
Past service cost
–
(295)
Other finance expense
(181)
(213)
Actuarial gain
1,587
1,421
Deficit at 30 November
(9,641)
(12,602)
The change in the present value of the Plan assets during the year is as follows:
2022
£’000
2021
£’000
Plan assets at 1 December
36,971
33,437
Benefit payments
(1,801)
(1,838)
Company contributions
2,111
2,254
Administration expense
(324)
(358)
Member contributions
110
128
Interest income on plan assets
574
503
(Loss)/gain on Plan assets (excluding interest income)
(13,172)
2,845
Plan assets at 30 November
24,469
36,971
The change in the present value of the Plan liabilities during the year is as follows:
2022
£’000
2021
£’000
Plan liabilities at 1 December
(49,573)
(48,556)
Current service cost
(232)
(292)
Interest cost
(755)
(716)
Member contributions
(110)
(128)
Past service cost
–
(295)
Benefits paid
1,801
1,838
Gain/(loss) on change in financial and demographic assumptions
14,759
(1,424)
Plan liabilities at 30 November
(34,110)
(49,573)
The Plan liabilities by participant member status are as follows:
2022
£’000
2021
£’000
Active
(7,314)
(12,352)
Deferred
(13,414)
(21,865)
Pensioner
(13,382)
(15,356)
Plan liabilities at 30 November
(34,110)
(49,573)
The weighted average duration of the Plan scheme liabilities at the end of the reporting period is 13 years (2021: 20 years).
20 Retirement benefit obligations
continued
117
Porvair plc Annual Report & Accounts 2022
Financial statements
The movements in the Plan during the year are as follows:
Income statement
2022
£’000
2021
£’000
Analysis of amounts chargeable to operating profit:
Current service cost
(232)
(292)
Administration expense
(324)
(358)
Past service cost
–
(295)
Amount chargeable to operating profit
(556)
(945)
Analysis of amounts (charged)/credited to other finance income and costs:
Interest on Plan liabilities
(755)
(716)
Expected return on Plan assets
574
503
Net amount charged to other finance income and costs
(181)
(213)
Total chargeable to the income statement before deduction of tax
(737)
(1,158)
Other items
Analysis of amounts recognised in the consolidated statement of comprehensive income:
Actual (loss)/gain on assets in excess of expected return
(13,172)
2,845
Gain/(loss) on change in financial and demographic assumptions
14,759
(1,424)
Total actuarial gain recognised in the consolidated statement of comprehensive income
1,587
1,421
Cumulative actuarial loss recognised in the consolidated statement of comprehensive income
(7,826)
(9,413)
21 Provisions
Dilapidations
£’000
Warranty
£’000
Total
£’000
At 1 December 2021
296
4,372
4,668
Additional charge in the year
–
439
439
Utilisation of provision
–
(40)
(40)
Release of provision
–
(1,120)
(1,120)
Unwinding of discount
32
–
32
Exchange
–
41
41
At 30 November 2022
328
3,692
4,020
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. See also note 26.
Analysis of total provisions
2022
£’000
2021
£’000
Current
3,692
4,372
Non-current
328
296
Net book value at 30 November
4,020
4,668
22 Share capital and share premium account
Number of
shares
Share capital
£’000
Share premium
account
£’000
Total
£’000
At 1 December 2020
46,155,700
923
36,927
37,850
Issue of shares on exercise of share options
45,985
1
151
152
At 30 November 2021
46,201,685
924
37,078
38,002
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
20 Retirement benefit obligations
continued
118
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
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 September, October and November 2022, 123,896 (2021: 45,985) ordinary shares of 2 pence each were issued on the exercise of
Save As You Earn share options for cash consideration of £0.6 million (2021: £0.2 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 Incentive Plan. The EBT has waived its rights to dividends. During the year the
Group purchased 120,000 ordinary shares of 2 pence each (2021: 120,000) for a total consideration of £0.7 million (2021: £0.7 million).
During the year the EBT did not issue any ordinary shares (2021: 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 £3.8 million (2021: £3.0 million). As at 30 November 2022 the EBT held a total of 375,700 ordinary shares of 2 pence each
(2021: 255,700) at a cost of £2.2 million (2021: £1.5 million) and a market value of £2.1 million (2021: £1.8 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 72.
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)
2022
Number of
shares
2021
Number of
shares
2017 5yr Save As You Earn Scheme
2017
2022 – 2023
398.00
12,209
56,675
2019 3yr Save As You Earn Scheme
2019
2022 – 2023
470.00
24,075
105,245
2019 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
92,000
92,000
2021 3yr Save As You Earn Scheme
2021
2024 – 2025
460.00
124,140
142,682
2021 5yr Save As You Earn Scheme
2021
2026 – 2027
460.00
32,993
34,949
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
–
At 30 November
629,239
655,773
The outstanding share options have a weighted average contractual life of 1.5 years (2021: 2.2 years).
Movements in share options during the year were:
2022
Weighted
average
exercise
price (pence)
2021
Weighted
average
exercise
price (pence)
2022
Number of
shares
2021
Number of
shares
At 1 December
249.97
237.03
655,773
458,132
Options granted
2.00
218.70
119,600
386,829
Options forfeited
461.29
98.35
(22,238)
(143,203)
Options exercised
443.89
330.21
(123,896)
(45,985)
At 30 November
157.15
249.97
629,239
655,773
Options exercisable at 30 November
445.77
–
36,284
–
Options not exercisable at 30 November
139.49
249.97
592,955
655,773
Total
157.15
249.97
629,239
655,773
Options granted during the year were:
Year of
grant
Scheme
Exercise
price
(pence)
2022
Number of
shares
2021
Number of
shares
2021
2018 LTSP
2.00
–
157,600
2021
2018 LTSP
2.00
–
46,200
2021
3yr SAYE
460.00
–
148,080
2021
5yr SAYE
460.00
–
34,949
2022
2018 LTSP
2.00
119,600
–
Total
119,600
386,829
22 Share capital and share premium account
continued
119
Porvair plc Annual Report & Accounts 2022
Financial statements
Options forfeited during the year were:
Year of
grant
Scheme
Exercise
price
(pence)
2022
Number of
shares
2021
Number of
shares
2016
5yr SAYE
300.00
–
334
2017
5yr SAYE
398.00
25
553
2019
2008 LTSP
2.00
–
113,400
2019
3yr SAYE
470.00
1,715
18,518
2019
5yr SAYE
470.00
–
5,000
2021
3yr SAYE
460.00
18,542
5,398
2021
5yr SAYE
460.00
1,956
–
Total
22,238
143,203
Options exercised during the year were:
Year of
grant
Scheme
Exercise
price
(pence)
2022
Number of
shares
2021
Number of
shares
2016
5yr SAYE
300.00
–
35,666
2017
3yr SAYE
398.00
–
4,113
2017
5yr SAYE
398.00
44,441
954
2019
3yr SAYE
470.00
79,455
3,870
2019
5yr SAYE
470.00
–
1,382
Total
123,896
45,985
For options exercised in the year, the weighted average share price at the date of exercise was 518 pence (2021: 627 pence).
A summary of the outstanding share option fair value assumptions is given below:
Grant date
Scheme
01/10/17
SAYE
5 year
01/10/19
SAYE
3 year
01/10/19
SAYE
5 year
07/02/20
Porvair 2018
LTSP
02/02/21
Porvair 2018
LTSP
24/04/21
Porvair 2018
LTSP
01/06/21
SAYE
3 year
01/06/21
SAYE
5 year
04/02/22
Porvair 2018
LTSP
Share price at grant date
498.75p
586.00p
586.00p
770.00p
540.00p
552.00p
570.00p
570.00p
676.00p
Exercise price
398.00p
470.00p
470.00p
2.00p
2.00p
2.00p
460.00p
460.00p
2.00p
Shares under option
12,209
24,075
20,422
92,000
157,600
46,200
124,140
32,993
119,600
Vesting period (years)
5
3
5
3
3
3
3
5
3
Expected volatility
30%
36%
36%
37%
45%
46%
46%
42%
47%
Expected life (years)
5
3
5
3
3
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%
Dividend yield
0.78%
0.80%
0.80%
0.64%
0.93%
0.91%
0.88%
0.88%
0.72%
Fair value per option (£)
1.73402
1.96535
2.28535
7.53527
5.23294
5.35290
2.18112
2.38850
6.59547
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
2022
£’000
2021
£’000
Charge for the year
1,057
247
23 Share options and share-based payments
continued
120
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
24 Cash generated from operations
2022
£’000
2021
£’000
Operating profit
19,810
15,842
Adjustments for:
– Payment Protection Program loan waiver
–
(1,337)
– Fair value movement of derivatives through profit and loss
(255)
43
– Share-based payments
1,057
247
– Depreciation of property, plant and equipment and amortisation of intangibles
3,845
3,662
– Depreciation of right-of-use assets
2,212
2,138
– Impairment of property, plant, equipment
186
195
– Impairment of right-of-use assets
14
150
– Loss on disposal of property, plant and equipment
–
68
Operating cash flows before movement in working capital
26,869
21,008
– Increase in inventories
(4,919)
(476)
– (Increase)/decrease in trade and other receivables
(2,044)
215
– Increase/(decrease) in trade and other payables
5,032
(256)
– Decrease in provisions
(783)
(282)
Increase in working capital
(2,714)
(799)
Post employment benefits (net cash movement)
(1,357)
(1,585)
Cash generated from operations
22,798
18,624
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 pages 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:
2022
$’000
2021
$’000
Outstanding forward contracts
13,000
1,000
The Group has the following current assets and liabilities denominated in US dollars:
2022
$’000
2021
$’000
Trade receivables
17,048
12,951
Cash balances
9,713
8,558
Other current assets
15,356
13,476
Trade payables
(5,694)
(4,547)
Other current liabilities
(11,128)
(10,118)
25,295
20,320
121
Porvair plc Annual Report & Accounts 2022
Financial statements
The US dollar strengthened by 10% over the year to 30 November 2022 (2021: strengthened by 1%) 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):
2022
£’000
2021
£’000
US dollar strengthens
2,360
1,706
US dollar weakens
(1,931)
(1,396)
(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:
2022
€’000
2021
€’000
Outstanding forward contracts
400
250
The Group has the following current assets and liabilities denominated in Euros:
2022
€’000
2021
€’000
Trade receivables
4,891
4,403
Cash balances
2,904
4,669
Other current assets
2,820
1,245
Trade payables
(3,212)
(2,465)
Other current liabilities
(5,588)
(5,742)
1,815
2,110
The Euro strengthened by 2% over the year to 30 November 2022 (2021: weakened by 5%) 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):
2022
£’000
2021
£’000
Euro strengthens
175
199
Euro weakens
(143)
(165)
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 £21,000 (2021: £39,000) 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 overleaf 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.
25 Financial risk management
continued
122
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
Greater than
5 years
£’000
Carrying
amount
(assets) /
liabilities
£’000
Borrowings
–
–
–
–
–
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
Less than
1 year
£’000
Between
1 and 2 years
£’000
Between
2 and 5 years
£’000
Greater than
5 years
£’000
Carrying
amount
(assets) /
liabilities
£’000
Borrowings
123
123
5,880
–
5,217
Lease liabilities
2,338
2,338
4,143
4,874
12,231
Derivatives
20
–
–
–
20
Trade and other payables
19,593
1,000
–
–
21,403
At 30 November 2021
22,074
3,461
10,023
4,874
38,871
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
–
(319)
–
(319)
Contingent consideration
–
–
(945)
(945)
At 30 November 2022
–
(319)
(945)
(1,264)
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Financial assets at fair value through profit or loss:
– Trading derivatives
–
(20)
–
(20)
Contingent consideration
–
–
(1,810)
(1,810)
At 30 November 2021
–
(20)
(1,810)
(1,830)
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.
25 Financial risk management
continued
123
Porvair plc Annual Report & Accounts 2022
Financial statements
The tables below analyse financial instruments by category:
2022
2021
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
–
554
–
554
–
–
–
–
Trade and other receivables
excluding prepayments
23,132
–
–
23,132
20,356
–
–
20,356
Cash and cash equivalents
18,297
–
–
18,297
15,442
–
–
15,442
At 30 November
41,429
554
–
41,983
35,798
–
–
35,798
2022
2021
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
–
–
–
–
(5,217)
–
–
(5,217)
Foreign exchange contracts
–
(319)
–
(319)
–
(20)
–
(20)
Trade and other payables excluding
non-financial liabilities
(24,884)
–
–
(24,884)
(19,593)
–
–
(19,593)
At 30 November
(24,884)
(319)
–
(25,203)
(24,810)
(20)
–
(24,830)
The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short term nature.
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
2022 was not applicable because the Group had a net cash position excluding lease liabilities (2021: 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 2022. The multi-currency facility is secured by fixed and floating charges against certain of
the Group’s assets in the UK and wider Europe.
.
25 Financial risk management
continued
124
Porvair plc Annual Report & Accounts 2022
Financial statements
Notes to the consolidated financial statements
continued
26 Contingent liabilities
At 30 November 2022, the Group had the following advanced payment bonds (relating to monies received in advance on contracts)
and performance bonds:
$’000
€’000
Advanced payment bonds
–
657
Performance bonds
956
353
At 30 November 2022
956
1,010
$’000
€’000
Advanced payment bonds
–
320
Performance bonds
2,549
811
At 30 November 2021
2,549
1,131
US$1.0 million (2021: US$2.5 million) of the performance bonds relate to the contracts for filtration systems provided for gasification
projects. These projects are being commissioned, a process which is taking several years. The Group has provided its best estimate of
the amount of any potential loss arising from rectification and claims arising on these contracts within the £3.7 million warranty
provisions disclosed in note 21. The uncalled performance bonds are expected to be called or released no later than December 2024.
27 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 2022 were £2.5 million (2021: £1.6 million).
28 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.
2022
£’000
2021
£’000
Salaries and other short term employee benefits
1,259
1,220
Post employment benefits
34
62
Share-based payments
852
130
2,145
1,412
There were no related party transactions in the year ended 30 November 2022 and 30 November 2021.
125
Porvair plc Annual Report & Accounts 2022
Financial statements
29 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 2022 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
65%
Porvair Filtration Limited
7 Regis Place, Bergen Way, King's Lynn, UK
Holding
England
100%
Porvair Holdings B.V.
Gustav Mahlerplein 3, 1082MS, Amsterdam,
Netherlands
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%
126
Porvair plc Annual Report & Accounts 2022
Financial statements
Parent Company – Balance sheet
Company registered number 01661935
As at 30 November
Note
2022
£’000
2021
£’000
Non-current assets
Property, plant and equipment
4
11
15
Right-of-use assets
5
59
105
Investments
6
62,987
62,707
Deferred tax asset
12
2,672
3,782
65,729
66,609
Current assets
Amounts receivable from Group undertakings
7
20,338
20,840
Other receivables
8
68
63
Income tax receivable
277
307
Derivative financial instruments
13
554
–
Cash and cash equivalents
9
692
1,182
21,929
22,392
Current liabilities
Trade and other payables
10
(2,645)
(2,643)
Lease liabilities
5
(46)
(46)
Borrowings
11
–
(1,694)
Derivative financial instruments
13
(223)
–
(2,914)
(4,383)
Net current assets
19,015
18,009
Non-current liabilities
Borrowings
11
–
(5,217)
Other payables
–
(945)
Lease liabilities
5
(11)
(58)
Retirement benefit obligations
14
(9,641)
(12,602)
(9,652)
(18,822)
Net assets
75,092
65,796
Capital and reserves
Share capital
15
927
924
Share premium account
37,626
37,078
Retained earnings
36,539
27,794
Total equity
75,092
65,796
The financial statements on pages 126 to 135 were approved by the Board of Directors on 27 January 2023 and were signed on its
behalf by:
B D W Stocks
J A Mills
127
Porvair plc Annual Report & Accounts 2022
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 £9.7 million (2021: £11.1 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 2020
923
36,927
17,885
55,735
Profit for the year
–
–
11,123
11,123
Other comprehensive income:
Actuarial gain in defined benefit pension plans net of tax
–
–
1,600
1,600
Total comprehensive income for the year
–
–
12,723
12,723
Share-based payments charge
–
–
247
247
Purchase of own shares (held in trust)
–
–
(716)
(716)
Issue of ordinary share capital
15
1
151
–
152
Dividends paid
–
–
(2,345)
(2,345)
At 30 November 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
128
Porvair plc Annual Report & Accounts 2022
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 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 IFRS have been applied in the preparation of these financial statements, in
accordance with FRS 101:
•
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;
(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”:
–
16 (statement of compliance with all IFRS);
–
38A (requirement for minimum of two primary statements, including cash flow statements);
–
38B-D (additional comparative information);
–
111 (cash flow statement information); and
–
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 FRS 101 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:
•
Pension 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 2022
have been calculated and are given in note 20 of the Group financial statements.
129
Porvair plc Annual Report & Accounts 2022
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, which is a critical assumption. As an example, if the
success rate of the unvested share options were increased/decreased by 10% then the share option charge would be £52,000
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 in value.
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
130
Porvair plc Annual Report & Accounts 2022
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 which are designated and effective as hedges of future cash flows are recognised in equity
and are reclassified to profit or loss on maturity of the derivative. Changes in the fair value of foreign currency derivatives which are
ineffective or which do not meet the criteria for hedge accounting 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
131
Porvair plc Annual Report & Accounts 2022
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:
2022
£’000
2021
£’000
Fees payable to Company’s Auditor for audit of parent company financial statements
28
28
28
28
3 Employees and Directors
The staff cost, including Executive Directors, for the year is shown below:
2022
£’000
2021
£’000
Staff costs
Wages and salaries
1,943
2,215
Social security costs
260
195
Other pension costs
111
115
Share-based payments
777
130
3,091
2,655
The average monthly number of staff, including Directors, employed during the year is as below:
2022
Average
Number
2021
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 (2021: 1).
The number of directors to whom retirement benefits are accruing under a defined benefit pension scheme is 1 (2021: 1).
Detailed disclosures of Directors’ individual remuneration and share options are given in the Remuneration report on pages 65 to 72,
and in note 28 of the Group financial statements.
4 Property, plant and equipment
Plant,
machinery and
equipment
£’000
Cost
At 1 December 2021
182
Additions
3
At 30 November 2022
185
Accumulated depreciation
At 1 December 2021
(167)
Charge for year
(7)
At 30 November 2022
(174)
Net book value
At 30 November 2022
11
At 30 November 2021
15
The Company did not have any capital commitments at 30 November 2022 or 30 November 2021.
132
Porvair plc Annual Report & Accounts 2022
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 2021
193
5
198
At 30 November 2022
193
5
198
Accumulated depreciation
At 1 December 2021
(91)
(2)
(93)
Charge for year
(44)
(2)
(46)
At 30 November 2022
(135)
(4)
(139)
Net book value
At 30 November 2022
58
1
59
At 30 November 2021
102
3
105
Lease liabilities
The movement in the lease liability is set out below:
2022
£’000
2021
£’000
At 1 December
104
150
Repayments of lease liabilities
(49)
(49)
Interest on lease liabilities
2
3
At 30 November
57
104
Lease liabilities mature as follows:
Minimum right-of-use liabilities falling due
2022
£’000
2021
£’000
Within one year – land and buildings
48
48
Within one year – property, plant and equipment
1
1
Total within one year
49
49
Between one and five years – land and buildings
9
57
Between one and five years – property, plant and equipment
1
2
Total between one and five years
10
59
Total commitment
59
108
Less: finance charges included above
(2)
(4)
Net present value of lease liabilities at 30 November
57
104
Current
46
46
Non-current
11
58
Total at 30 November
57
104
133
Porvair plc Annual Report & Accounts 2022
Financial statements
6 Fixed asset investments
Investments in subsidiary undertakings
2022
£’000
2021
£’000
Cost
At 1 December
62,707
55,506
Additions in the year
–
7,084
Capital contributions arising from share-based payments charge
280
117
At 30 November
62,987
62,707
Net book value
At 30 November
62,987
62,707
At 1 December
62,707
55,506
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 29 of the Group financial statements.
7 Amounts receivable from Group undertakings
2022
£’000
2021
£’000
Loans to subsidiary undertakings
20,338
20,840
20,338
20,840
Amounts owed by group undertakings are interest free and unsecured with no fixed terms for repayment.
8 Other receivables
2022
£’000
2021
£’000
Amounts falling due within one year:
Prepayments
68
63
68
63
9 Cash and cash equivalents
2022
£’000
2021
£’000
Cash at bank and in hand
692
1,182
134
Porvair plc Annual Report & Accounts 2022
Financial statements
Parent Company – Notes to the financial statements
continued
10 Trade and other payables
2022
£’000
2021
£’000
Amounts falling due within one year:
Trade creditors
33
96
Taxation and social security
150
125
Other payables
945
865
Accruals and deferred income
1,517
1,557
2,645
2,643
Other payables relates to contingent consideration on acquisitions.
11 Borrowings
2022
£’000
2021
£’000
Bank overdraft offset against cash balances in other Group companies under a
Group banking offset arrangement
–
1,694
Secured multi-currency revolving credit facility
–
5,217
–
6,911
Bank and other loans of the Company are repayable as follows:
2022
£’000
2021
£’000
Within one year
–
1,694
Two to five years
–
5,217
–
6,911
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. The facility has a margin
over EURIBOR ranging between 2.2% – 2.8%, depending on leverage, and a non-utilisation fee of 0.76%. The margin may be adjusted
depending upon achievement of ESG metrics.
At 30 November 2022, the Company had €27.7 million/£23.9 million (2021: €17.3 million/£11.3 million) of unused credit facility and an
unutilised £2.5 million (2021: £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.
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 2020
8
17
793
2,988
3,806
Charged to the income statement
(7)
(13)
–
–
(20)
Credited to equity in respect of share options
–
–
25
–
25
Charged to comprehensive income in respect of pension liabilities
–
–
–
(29)
(29)
At 30 November 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
There were no unrecognised deferred tax amounts at 30 November 2022 (2021: £nil).
135
Porvair plc Annual Report & Accounts 2022
Financial statements
13 Derivative financial instruments
Forward foreign exchange contract assets and liabilities
2022
£’000
2021
£’000
Forward foreign exchange contracts – current assets
554
–
Forward foreign exchange contracts – current liabilities
(223)
–
331
–
14 Retirement benefit obligations
2022
£’000
2021
£’000
Defined benefit scheme deficit
9,641
12,602
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 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 Group operates a defined contribution pension scheme for a certain number of its employees. As at 30 November 2022, £5,000
(2021: £4,000) in relation to this pension scheme was outstanding to be paid.
15 Called up share capital
2022
£’000
2021
£’000
Allotted and fully paid:
46,325,581 ordinary shares of 2 pence each (2021: 46,201,685)
927
924
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 2022 (2021: none).
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.
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
10th Floor
Central Square
29 Wellington Street
Leeds LS1 4DL
Telephone: 0371 664 0300 if calling from the United Kingdom,
or +44 (0) 371 664 0391 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: [email protected].
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: [email protected]
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.
Financial Calendar 2023
30 November 2022
– Financial year end 2022
30 January 2023
– Full year 2022 results
18 April 2023
– AGM
4 May 2023
– Ex-dividend date
5 May 2023
– Record date for dividend
31 May 2023
– Half year 2023 period end
7 June 2023
– Payment date for dividend
3 July 2023
– Half year 2023 results announcement
20 July 2023
– Ex-dividend date
21 July 2023
–
Record date for dividend
23 August 2023
– Payment date for dividend
30 November 2023
– Financial year end 2023
Porvair plc Annual Report & Accounts 2022
Other information
136
Shareholder information
23
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
10th Floor
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
Find out more about Porvair and its latest financial information, results,
presentations, reports and shareholder services or view and download pdf
versions of the 2022 Annual Report and ESG Report:
Annual
Report
2022
ESG
Report
2022
Reporting suite of documents
Consultancy, Design and Production by Bexon Woodhouse
Printed by Pureprint, a CarbonNeutral
®
Company certified to ISO 14001
environmental management system.100% of all dry waste associated with this
production has been recycled. This publication is printed on Splendorgel, an
FSC
®
certified paper produced from mixed sourced material and manufactured
at a mill that has ISO 14001 environmental standard accreditation.
Contact details and advisers
Porvair plc
Annual Report & Accounts 2022
Porvair plc
7 Regis Place
Bergen Way
King’s Lynn
Norfolk PE30 2JN
Tel: +44 (0)1553 765500