Porvair Regulatory News (PRV)

For immediate release 29 January 2018

Results for the year ended 30 November 2017

Record revenue, profit before tax and strong cash generation

Porvair plc ("Porvair" or "the Group"), the specialist filtration and environmental technology group, today announces its results for the year ended 30 November 2017.

Strong financial performance:

· Record revenue of £116.4 million (2016: £109.4 million), up 6%.

· 16% increase in profit before tax to a record £11.7 million (2016: £10.1 million).

· Basic earnings per share up 14% to a record of 19.5 pence (2016: 17.1 pence).

· Revenue growth at constant currency*, stripping out large projects, was 11%.

· Strong cash generation: net cash was £9.8 million at 30 November 2017 (2016: £13.6 million) after £11.4 million (2016: £7.4 million) was invested in capital expenditure and acquisitions.

· Final dividend of 2.7 pence per share (2016: 2.4 pence per share) recommended, an increase of 12.5%.

· JG Finneran Associates Inc., acquired on 4 April 2017, trading ahead of our expectations. Integration actions going well.

· Rohasys BV, acquired on 7 December 2017, has started well.

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

"The Group has started 2018 with a healthy order position and is trading well. Investments in capacity and manufacturing capabilities have continued throughout 2017 and will allow for further growth. JG Finneran Associates Inc., acquired in April 2017, is performing ahead of our expectations and Rohasys BV, acquired in December 2017, is a good strategic fit and has started well. The Group remains in a strong financial position and a promising start has been made to the current financial year."

*See note 14 for definition of revenue at constant currency.

For further information please contact:

An analyst briefing will take place at 9:30 a.m. on Monday 29 January 2018 at Buchanan. An audio webcast and a copy of the presentation will be available at www.porvair.com on the day.

Operating review

Overview of 2017

Profit before tax in the year ended 30 November 2017 was up 16% to a record £11.7 million. Earnings per share increased 14% to 19.5 pence. Strong cash generation enabled the Group to finish the year with net cash of £9.8 million having invested £11.4 million in capital expenditure and acquisitions in the year.

Revenue was £116.4 million, an increase of 6%. Record revenue was achieved in aerospace filtration, by the Microfiltration division's US operation, by Seal Analytical, and in aluminium filtration. Demand in the nuclear, general industrial and bioscience markets was also strong. JG Finneran Associates Inc. ("JGF") was acquired in April 2017 and has traded ahead of our expectations over the balance of the year.

Over the last five years, the Group has delivered revenue growth of 52% (9% CAGR) and cash from operations of £65 million. Profit before tax has increased 83% at a CAGR of 13%. Over the same period, £34 million has been invested in capital expenditure and acquisitions, while net debt of £3.9 million has moved into a cash position of £9.8 million. In 2017, the Group's after tax operating profit return on operating capital was 46% (2016: 48%).

Strategic statement

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

· Specialist design or engineering skills are required;

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

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

This strategy continues to work well for the Group, which moves into 2018 in a position of financial strength, able to invest in both organic and acquired growth as appropriate.

Business model outline

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

This leads us to:

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

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

3. Make new product development a core business activity.

4. Establish geographic presence where end-markets require.

5. Invest in both organic and acquired growth.

Therefore:

· We focus on four markets: aerospace; energy and industrial; laboratories; and higher grade molten metals. All have clear structural growth drivers.

· Our products are specialist in nature and typically protect costly or complex downstream systems. They are normally replaced regularly. A high proportion of our annual revenue is from repeat orders.

· We prioritise new product development to generate growth rates in excess of the underlying market. Where possible we build robust intellectual property around our product developments.

· Our geographic presence follows the markets we serve: 54% of revenue is in the Americas; 19% in Asia; 13% in the EU; 13% in the UK; and 1% in Africa.

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

Operating structure

· In 2017 the Group operated with two divisions. The Microfiltration division served the aerospace, energy and industrial, and laboratory markets. The Metals Filtration division focused on the filtration of molten metals, principally aluminium.

· In 2018 the Group will move to three divisions. It will change its management and reporting structure to improve market focus and offer greater investor clarity. Each division addresses a core market: Aerospace & Industrial (approximately 40% of Group revenue); Laboratory (approximately 30% of Group revenue); and Metal Melt Quality (approximately 30% of Group revenue).

· The Group has plants in the US, UK, Germany, Netherlands and China. In 2017, 57% of revenue was manufactured in the US, 32% in the UK, 9% in Germany and 2% in China.

Investment and future development

The Group invested £11.4 million (2016: £7.4 million) in acquisitions and capital expenditure in the year. The main investments made during 2017 were:

· The acquisition of JGF on 4 April 2017, expanding the Group's offering in laboratory filtration, sample preparation, and chromatography consumables. Based in the US, JGF adds stronger distribution capabilities for these products and fits well with our established life science activities. Opportunities for combining manufacturing and distribution have already been realised and a wider product offering resulted in record revenues for our existing microplate business.

· Investments have been made in JGF to expand machine capacity. Plans to expand the facility in Vineland, NJ, are now well advanced.

· A new manufacturing unit for the manufacture of aerospace inerting filters was commissioned in the UK, bringing some manufacture in-house and improving productivity.

· A new facility for Seal Analytical in the US was opened at the start of the year.

· Further investments were made to expand our Metal Melt Quality capabilities in China.

· New capacity and equipment was added to our ceramic 3D manufacturing capability in the US.

· We will complete the expansion of our US microelectronics filtration facility and update our UK laboratory filtration media manufacturing in 2018.

· On 7 December 2017 we acquired Rohasys BV ("Rohasys"), a Dutch company that brings robotic sample handling expertise to the Group. We believe this will greatly enhance the Group's new product development capabilities in the Laboratory division.

New product development remains core to Porvair's strategy, with incremental range extensions and increasing product differentiation being priorities. In 2017 research and development spending was £4.1 million (2016: £3.7 million), highlights of that development include:

· Our latest commercial aerospace inerting filter went into production.

· Seal Analytical launched one new platform and two model upgrades. Two further introductions are planned for 2018, including a major overhaul and upgrade of one of our key products.

· New 3D printed ceramic filters were introduced. The Group is one of very few with a successful commercial offering of this unique technology.

· A high strength HEPA nuclear filter was introduced and significant orders won. Production is now underway.

Divisional review

Microfiltration

Record results were achieved in the Microfiltration division. Revenue was up 5% to £78.6 million and operating profit was up 8% to £12.8 million.

Adjusting for large projects (a net revenue decline of £9.3 million, as forecast), the impact of acquisitions (a revenue increase of £5.9 million), and exchange translation effects, underlying revenue growth was 7%. Making these same adjustments, underlying operating profit growth was 12%.

Demand in aerospace and industrial markets was encouraging. Aerospace revenues grew 8%. Nuclear filtration had a good year and finished strongly with a substantial order in the final quarter that will ship in 2018. Revenues in the US industrial businesses were up 10%.

Large gasification projects are moving into commissioning phase, with installations in South Korea, India and China planning further start-up runs in 2018. The Indian Joint Venture agreement to design and build cleaning equipment for the Indian installation is making progress. As set out in previous statements, the Group uses long term contract accounting for these large projects. Revenue is principally recognised through the manufacturing and shipping phase of each project: £19.5 million was reported in 2014; £5.5 million in 2015; £9.6 million in 2016; and £0.3 million in 2017. Allowance is made for potential future costs arising during the commissioning and warranty stages of the projects. Profits become more certain as the projects mature. Profit of £1.1 million (2016: £2.4 million) was recognised in the year.

In what will become the new Laboratory division in 2018, Seal Analytical ("Seal") achieved another record result with revenue growth of 5% (4% in constant currency). Seal is a leading supplier of equipment and consumables to environmental laboratories and specialises in equipment for the detection of inorganic contamination in water. This niche market grows as water quality standards improve. Seal distinguishes itself from its competitors with an active new product development programme and five new platforms have been introduced over the last five years. Two more will be introduced in 2018. Seal's five-year compound annual revenue growth is 11%.

The balance of the Laboratory division will trade as Porvair Sciences and will focus on the growing demand for laboratory filters and associated consumables. Of particular interest will be laboratory sample preparation, a key filtration step in most analytical science activities. The Group has some proprietary capabilities in the field and we plan to invest in these to improve manufacturing and broaden distribution. The acquisition of JGF and Rohasys are key to this plan. JGF has started very well, exceeding the targets agreed at the time of the acquisition and expanding its capacity to meet expected further growth. General bioscience filtration grew 16% in 2017.

Metals Filtration

This division serves three market segments and has a well differentiated and patented product range:

· Selee CSX™ and Selee CSW™ for aluminium cast house filtration. These products have a unique environmental footprint in being free of phosphates and ceramic fibres.

· Selee IC™ for grey and ductile iron filtration. This range is sold principally in the US and offers excellent filtration efficiency.

· Selee SA™ for the filtration of nickel cobalt alloys (super alloys). This niche application requires exceptional filtration performance and uses proprietary manufacturing techniques.

Revenue increased by 9% to £37.8 million. This was a record, albeit flattered by currency movements. At constant currency revenue for the year was up 1%. Sales revenues in the US grew 3%, led by super alloy demand.

Losses in China, higher than expected US healthcare costs, and some US production inefficiencies held operating profit back to £1.7 million. This result was disappointing and steps were taken in the final quarter to put 2018 on a stronger footing. This will mean growing volumes in China; continuing to build market share with our patented filtration range; and expanding our ceramic 3D manufacturing capabilities which are showing promise in several new super alloy melt quality niches.

As the Chinese aluminium market develops, we expect demand for our proprietary filters to grow, based on demonstrably better quality and environmental performance. Higher grades of metal require better filtration and Chinese producers are moving to higher grade alloys. We are prepared to be patient in building our position and continue to sell on value rather than price. This can be frustrating, but our experience in other parts of the world (where sales of Selee CSXTM achieved another record in 2017) gives us confidence that this is the right strategy.

Dividends

The Board re-affirms its preference for a progressive dividend and recommends an improved final dividend of 2.7pence per share (2016: 2.4 pence). This makes the full year dividend 4.2 pence per share (2016: 3.8 pence), an increase of 11%.

Staff

Porvair continues to grow and the Board welcomes the new staff who have joined us during 2017, particularly those at JGF and Rohasys. We are delighted to be working with them all. We recognise that our success is entirely due to the skill and commitment of our staff, to whom we offer our thanks.

Board changes

We were pleased to welcome John Nicholas to the Board as an Independent Non-Executive Director and Chairman elect. John brings wide experience to the Board having served on the Boards of Rotork plc, Hunting plc, Ceres Power Holdings plc, Mondi plc and Diploma plc, where he is Chairman. He will take over as Chairman from Charles Matthews, who will retire from the Board at the April 2018 AGM. Under Charles' Chairmanship, sales revenue at Porvair has grown 159% at a CAGR of 8%; profit before tax has increased 329% at a CAGR of 13%; and the Group's market capitalisation has grown approximately five-fold. This is a record that befits a fine Chairman, one with whom it has been a pleasure to work. He will leave with our sincerest thanks and best wishes.

Current trading and outlook

The Group has started 2018 with a healthy order position and is trading well. Investments in capacity and manufacturing capabilities have continued throughout 2017 and will allow for further growth. JGF, acquired in April 2017, is performing ahead of our expectations and Rohasys, acquired in December 2017, is a good strategic fit and has started well. The Group remains in a strong financial position and a promising start has been made to the current financial year.

Ben Stocks

Group Chief Executive

26 January 2018

Financial review

Reported revenue growth was 6%. Operating profit was up 16% and profit before tax increased by 16%.

Operating profit margins were 10.6% (2016: 9.7%). Margins improved in the Microfiltration division to 16.4% (2016: 15.9%) and central costs were lower. Metals Filtration margins reduced to 4.6% (2016: 6.2%) for the reasons described in the Operating Review. Central costs reduced to £2.2 million (2016: £3.3 million). In addition to normal head office costs, central costs includes acquisition expenses written off in the year of £0.5 million (2016: £nil); and share based payment charges of £0.5 million (2016: £0.5 million). It also includes the release of prior year currency contract mark-to-market provisions of £1.0 million (2016: charge of £1.0 million), with a corresponding higher charge in Microfiltration from booking the currency contracts at contract rates in the operating division.

Operating profit includes amortisation charges on intangible assets arising on acquisition of £0.3 million (2016: £0.3 million); and a charge of £nil (2016: £0.1 million) from the reassessment of acquisition consideration.

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 average rate used for translating the results of US operations into Sterling was $1.29:£1 (2016: $1.38:£1) and the Group's Euro denominated operations were translated at €1.15:£1 (2016: €1.25:£1). The rates used to translate the balance sheet at 30 November 2017 were $1.35: £1 (2016: $1.25:£1) and €1.14:£1 (2016: €1.18:£1). Weaker Sterling in the year lifted reported revenues on translation by 5%.

The Group sold $16.0 million and €5.5 million of its 2017 UK receipts during the financial year and achieved an average rate of $1.45:£1 (2016: $19 million at $1.50:£1) and €1.12:£1 (2016: €6.75 million at €1.23:£1), respectively. At 30 November 2016, the Group took a £1.4 million provision marking to market forward exchange contracts, £0.4 million in Microfiltration, on contracts covered by dollar denominated assets, and £1.0 million in central costs, on contracts not covered by dollar denominated assets. This provision has been released in the year as the forward exchange contracts were realised making the effective rate achieved by the Group on dollar sales $1.29: £1.

At 30 November 2017, the Group had $2.0 million (2016: $12.0 million) of outstanding forward foreign exchange contracts taken out to translate the future receipts on the Group's dollar revenue generated by the UK operations; offset by $3.9 million of net current assets on the UK operations' balance sheet.

Finance costs

Net interest payable remained stable at £0.7 million (2016: £0.6 million). Interest payable includes finance costs in relation to the defined benefit pension scheme, which were £0.4 million (2016: £0.4 million) in the year and bank interest and borrowing facilities non-utilisation fees of £0.3 million (2016: £0.2 million). Non-utilisation fees comprise £0.1 million (2016: £0.1 million) of the interest cost.

Interest cover was 19 times (2016: 18 times); excluding the impact of the pension finance charge, the interest cover is 55 times (2016: 66 times).

Tax

The Group tax charge was £2.8 million (2016: £2.3 million). This is an effective rate of 24% (2016: 23%), which is higher than the UK standard corporate tax rate of 19.3% (2016: 20%). Tax in the UK was reduced by the benefit of tax relief on the exercise of share options but the rates of tax are higher on profits made in Germany and the US. The tax charge comprises current tax of £2.0 million (2016: £2.4 million) and a deferred tax charge of £0.8 million (2016: credit of £0.1 million).

The Group carries a deferred tax asset of £2.9 million (2016: £3.3 million) and a deferred tax liability of £2.2 million (2016: £1.7 million). The deferred tax asset relates principally to the deficit on the pension fund and share-based payments. The deferred tax liability relates to accelerated capital allowances, capitalised development costs and other timing differences, arising in the US.

Total equity and distributable reserves

Total equity at 30 November 2017 was £74.9 million (2016: £71.4 million), an increase of 5% over the prior year. Increases in total equity arose from: profit after tax of £9.2 million (2016: £8.2 million) with the charge for employee share option schemes net of tax (2017 £0.5 million; 2016: £0.5 million) added back; £0.3 million (2016: £0.2 million) arising on the proceeds of the issue of shares on share option exercises; and a gain of £0.2 million (2016: loss of £0.1 million) in the value of hedge accounting instruments. Reductions in total equity arose from a pension scheme actuarial loss (net of tax) of £nil (2016: £3.5 million); exchange losses on translation of £4.0 million (2016: gains of £9.2 million); dividends paid of £1.8 million (2016: £1.6 million); and purchases by the Employee Benefit Trust of the Company's own shares charged directly to equity of £0.5 million (2016: £0.1 million).

The Company had £12.6 million (2016: £9.9 million) of distributable reserves at 30 November 2017. The Company's distributable reserves increased in the year as a result of dividends received from other Group companies offset by head office costs and dividends paid to shareholders.

Return on capital employed

The Group's return on capital employed was 15% (2016: 15%). Excluding the impact of goodwill and the net pension liability, the return on operating capital employed was 46% (2016: 48%). The Group's weighted average cost of capital is between 6% and 8%.

Cash flow

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

Net working capital increased by £1.4 million (2016: £1.7 million). In the year profit has been recognised on the large projects relating to cash that had been received in earlier years. In addition, the China plant continues its development with an increase in inventory.

Construction contracts and performance bonds

The impact of the large contracts on the income statement is described in the Operating Review above. At 30 November 2017, the Group had £0.8 million (2016: £0.8 million) due from contract customers and amounts due to contract customers of £8.0 million (2016: £7.9 million), representing the amount by which progress billings at 30 November 2017 exceeded revenue recognised to date on these large contracts.

The contract customers generally provide advance payments to fund the initial stages of the contracts and the Group provides advance payment bonds to the customer as security. The bonds are cancellable after up to six months following the shipment of goods. At 30 November 2017 there were no advance payment bonds outstanding (2016: $5.0 million).

The contract customers also generally require performance bonds to cover risks arising during the contract warranty periods. At 30 November 2017, the Group had $6.2million (2016: $7.2 million) of performance bonds outstanding.

Capital expenditure

Capital expenditure was £5.4 million (2016: £4.5 million) in the year. The principal investments in 2017 are described in the Operating Review. £1.8 million of the capital expenditure relates to the acquisition of buildings occupied by JGF which were acquired at the time of the acquisition. Capital expenditure in 2018 is expected to be at a similar underlying level.

Acquisitions

On 4 April 2017 the Group purchased the share capital of JGF. The total consideration was $12.5 million (£10.1 million); $6.5 million (£5.2 million) of this was paid on 4 April 2017, with the balance being contingent and due for payment in two equal instalments, one and two years after the purchase date. At 30 November 2017, $6.0 million (£4.4 million) was held in other payables.

On 4 December 2015, the Group acquired TEM Filter Company. The total consideration was $5.2 million (£3.6 million), of which $4.4 million (£2.9 million) was paid immediately. A final payment of $0.8 million (£0.7 million) was paid in 2017 based upon the performance of the business in its first year of ownership by the Group.

Post balance sheet event

On 7 December 2017 the Group purchased the share capital of Rohasys. The total maximum consideration was €3.5 million (£3.1 million); €1.3 million (£1.2 million) was paid immediately, with the balance being contingent on future performance and due for payment before 31 May 2021.

Pension schemes

The Group supports its defined benefit pension scheme in the UK, which is closed to new members, and provides access to defined contribution schemes for its US employees and other UK employees.

The Group total pension cost was £2.7 million (2016: £2.4 million). £2.3 million (2016: £2.0 million) was recorded as an operating cost: £1.6 million (2016: £1.3 million) related to funding defined contributions schemes; £0.6 million (2016: £0.6 million) related to the charge for the Group's defined benefit scheme and £0.1 million (2016: £0.1 million) related to the pension protection levy. £0.4 million (2016: £0.4 million) was charged as a finance cost in relation to the defined benefit scheme.

The Group's net retirement benefit obligation was £15.7 million (2016: £16.1 million). The Company contributions paid to the defined benefit scheme in the UK were £1.6 million (2016: £1.1 million). The service cost, administrative expenses and finance cost were £1.1 million (2016: £1.0 million) and the actuarial loss in the year was £0.1 million (2016: £4.2 million). All of the assumptions adopted were broadly in line with the previous year with the exception of the discount rate used to value the liabilities which was reduced from 2.9% to 2.5%, as a result of lower AA bond yields. This broadly accounts for the 4% in the increase in the plan liabilities to £43.8 million (2016: £42.1 million). The plan's assets increased to £28.3 million (2016: £26.1 million).

The defined benefit scheme had 43 (2016: 46) active members, 254 (2016: 261) deferred members and 247 (2016: 249) pensioners at 30 November 2017. The life expectancy of members of the scheme reaching the age of 65 at 30 November 2017 is assumed to be 21.6 years (2016: 21.7 years) for men and 23.5 years (2016: 23.7 years) for women. The weighted average duration of the plan scheme liabilities at the end of the period is 20 years (2016: 20 years).

A full triennial actuarial valuation of the assets and liabilities of the defined benefit scheme was completed in 2016, based on data at 31 March 2015. As a result of this review, the Group and the Trustees agreed to alter the employer's contributions from 13.3% of salary to 18.9% of salary. Additionally, the Group committed to making a £0.2 million annual contribution towards the running costs of the scheme from April 2016, which will increase by 3.5% per annum thereafter. The Group also committed to make additional annual contributions, to cover the past service deficit, of £1.0 million per annum, which commenced in December 2016. The next full actuarial valuation of the scheme will be based on the pension scheme's position at 31 March 2018 and is expected to be completed before June 2019.

Borrowings and bank finance

At the year end, the Group had cash balances of £12.5 million (2016: £13.6 million) and borrowings of £2.7 million (2016: £nil). 

On 24 May 2017, the Group agreed a new five year revolving credit facility of €23 million (£20 million) with Barclays Bank plc and Svenska Handelsbanken AB (publ). The facility has a margin over LIBOR of 1.5% and a non-utilisation fee of 0.4375%. The Group also has a £2.5 million overdraft facility provided by Barclays Bank plc. The financial covenants require the Group to maintain interest cover of 3.5 times and net debt to be less than 2.5 times EBITDA.

At 30 November 2017, the Group had net cash of £9.8 million (2016: £13.6 million), €19.6 million (£17.2 million) of unused facilities (2016: $20 million of unused facilities (£16 million)) and an unutilised overdraft facility of £2.5 million (2016: £2.5 million).

Finance and treasury policy

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

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

Chris Tyler

Group Finance Director

26 January 2018

Consolidated income statement

For the year ended 30 November

Consolidated statement of comprehensive income

For the year ended 30 November

Consolidated balance sheet

As at 30 November

Consolidated cash flow statement

For the year ended 30 November

Reconciliation of net cash flow to movement in net cash

 Consolidated statement of changes in equity

Notes

1. Segment information

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

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

1. Segment information continued

Segment assets and liabilities

Geographical analysis

2. Earnings per share

3. Dividends per share

The Directors recommend the payment of a final dividend of 2.7 pence per share (2016: 2.4 pence per share) on 1 June 2018 to shareholders on the register on 27 April 2018; the ex-dividend date is 26 April 2018. This makes a total dividend for the year of 4.2 pence per share (2016: 3.8 pence per share).

4. Property, plant and equipment

5. Goodwill and other intangible assets

6. Trade and other payables

7. Construction contracts

8. Borrowings

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

At 30 November 2017, the Group had €19.6 million of unused facilities (2016: $20 million of unused facilities) and an unutilised overdraft facility of £2.5 million (2016: £2.5 million).

9. Provisions

Provisions arise from a discounted dilapidations provision for leased property, which is expected to reverse in 2023 and sale warranties which are utilisable before 2020.

10. Share capital and premium

In June 2017, 178,030 ordinary shares of 2 pence each were issued on the exercise of Long Term Share Plan share options for cash consideration of £4,000. In February, March and October 2017, 155,465 ordinary shares of 2 pence each were issued on the exercise of Save As You Earn share options for cash consideration of £321,000.

In January 2016, 308,200 ordinary shares of 2 pence each were issued on the exercise of Long Term Share Plan share options for a cash consideration of £6,000. In July 2016, 25,000 ordinary shares of 2 pence each were issued on exercise of EMI share options for a cash consideration of £18,000. In October and November 2016, 150,928 ordinary shares of 2 pence each were issued on the exercise of Save As You Earn share options for a cash consideration of £140,000.

The Group uses an Employee Benefit Trust (EBT) to purchase shares in the Company to satisfy entitlements, granted since the Company's AGM in 2015, under the Group's Long Term Incentive Plan and Save As You Earn schemes. During the year the Group purchased 92,000 ordinary shares (2016: 20,000) of 2 pence for a total consideration of £475,000 (2016: £77,000). 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 £552,000 (2016: £77,000). As at 30 November 2017 the EBT held a total of 112,000 ordinary shares of 2 pence (2016: 20,000) at a cost of £552,000 (2016: £77,000) and a market value of £521,000 (2016: £84,000).

11. Acquisition

On 4 April 2017 the Group, through its subsidiary Porvair Corporation, purchased the share capital of J. G. Finneran Associates, Inc. ("JGF"), a manufacturer of products for the laboratory filtration, sample preparation and chromatography consumables market, based in the USA. The total consideration is $12,532,000 (£10,069,000); $6,532,000 (£5,248,000) of this was paid on 4 April 2017, with the balance being contingent and due for payment in two equal instalments, one and two years after the purchase date. The contingent consideration is estimated based on the forecast performance of the acquired business in its first two years of ownership by the Group. Management has forecast that payment of the maximum contingent consideration, $6,000,000 (£4,432,000), is the most probable outcome. A reduction in the annual operating profit by $100,000 (£78,000), which is considered a reasonable possible alternative, would reduce the liability by $375,000 of the first instalment and $200,000 of the second instalment. The direct costs of acquisition, which have been charged to the income statement, were $459,000 (£356,000). In the period since acquisition, the business has contributed $8,212,000 (£6,381,000) sales and $1,110,000 (£862,000) operating profit to the Group results. If JGF had been consolidated from 1 December 2016, the consolidated income statement would show proforma revenue of £119,473,000 and operating profit of £12,751,000.