Thank you. Good morning, everybody, and thank you for showing up to our interim presentation. Hopefully, you've all got a copy of the presentation, and we'll turn the pages and bring out the numbers as we go along. Many of you will have seen some of these slides before. The Porvair strategy doesn't change very much, but we will turn the pages for the benefit of the tape relatively briskly. I'm gonna open up on page 2, which starts with consistent strategy, which hasn't changed and is unlikely to change anytime soon because it's working pretty well, as you can see there, looking at the 6 months numbers, which hopefully now you've all had a chance to glance through. James will take you through the detailed numbers in just a minute.
They are a record set of interim numbers and the business is going really nicely, as you'll hear. We are optimism tempered by concern as to recessionary pressures, which seem to us to be building. For the time being, we are running very nicely, and we'll get into that in just a minute.
Then finally on this opening page, and importantly, really, our 5, 10, and 15-year compound growth record, which is relatively consistent, and is helpful, I think, particularly in sort of troublesome times, because while who knows what's gonna happen in 6 or 12 months, actually, when you start looking through that, you can see what the group is capable of and has done relatively consistently over in the longer timeframe, two pretty crunching recessions. That's very helpful for us to think about investment and other decisions. That's the sort of opening slide. Very quickly, as you all know, we are a specialist filtration laboratory, environmental technology business. We make regularly replaced engineered products.
We like that line of work because it has these attractive business characteristics. We make niche products with long life cycles, good barriers to entry in terms of either engineering design or quality accreditation or patents, and fundamental demand drivers pushing us along, and we list those on the right-hand side of slide 3. I tend not to go through them. Happy to discuss any of them, but I think that these are all well-recognized demand drivers in the medium term. They certainly, the group is positioned to take advantage of them, and I think in this last six months, one has seen that. On slide 4 then, this is the slide that really doesn't change at all.
Our strategy has been as it is now for many years. We principally measure success in terms of consistency of earnings growth and some ESG metrics. Just briefly on that, we do our ESG metrics annually, not semiannually. There's nothing on that in this presentation. We produce a full and separate ESG report in February, and we'll do so again next February. Just because we're not reporting on it doesn't mean it's not very much top of mind. What is new in Porvair in ESG terms in 2022 is that everybody's incentive from James and I all the way down have ESG metrics associated with the annual cash bonus. That is definitely sort of affecting performance, which is good.
In terms of where that strategy takes us, still on page four, while it takes us into regulated markets as you know, a customer-led product development process, which continues to deliver sort of slightly above trend growth, and then the allocation of cash, mainly to organic growth and margin enhancement, and I'll talk a bit more about that because margins are very key at the moment, and then the odd acquisition and a progressive dividend, which we have published this morning. Now on page five, you will all be aware, three divisions, three or four markets.
On this slide, we try and explain what we mean by regulated, why these markets are growing, how they relate back to fundamental growth drivers, and where we see competitive advantage. The share of revenues, Laboratory growing very quickly, relative to the other two. But as you'll hear, Aerospace starting to come back now, which is encouraging. Pretty straightforward structure, highly autonomous management teams. Head office is really just James and I. We try and leave as much decision-making as possible to the general managers who actually run the businesses. In these inflationary times, both cost inflation and passing that through, that's tremendously helpful actually.
The as close to the customer or supplier as you can make those decisions, I think that's working well for us. James will talk a bit about that. Just pausing then a little bit on slide 6 and the sort of key themes and what's happening. There are really three key themes. Decent sales growth across all three divisions and very healthy orders. We don't publish an order book. It does. It's never seemed to us to be sensible to do that. It has grown pretty much every month since June 2020 and has been at record levels for a while. However, so have lead times that have been extended.
It's easy to be flattered by or complacent about very large orders. You really need to divide your order book by your lead times and get to some sort of average number. Even at that level, we are ahead of where we might have been, you know, one, two and three years ago. That's encouraging. One mustn't get carried away. You know, we continue to trade nicely at the start of the second half with that sort of following tailwind.
It is mitigated to some extent with stuff that everybody will have been telling you for a while, and we started to talk about 12 months ago, in this set of results 12 months ago, which is supply chain disruption, which has now led to, as you know, inflation and, you know, we don't need to go into that in any great detail. Then there are still COVID hangovers. Have been all year, the Shanghai ports closing for a while. You know, COVID cases creeping up again. The risk there is that either in your own plants or in a supplier's plant, you know, a group of people go down and a line stops for a week. That's happened to us, it's happened to many of our suppliers.
It's just an additional complication in what is already a tight labor and supply market of you know further sort of turbulence. Those are the things, those are the main things that we're dealing with. Then in a bit more detail on the order position and the inflation supply chain, it is helpful for us that Aerospace is coming back, there's no question. Six months ago we were saying, well, we're just a bit concerned that Laboratory may settle. Laboratory grew very quickly last year. It may settle as COVID retreats. There's no sign of that, actually. We've got Laboratory continuing at a fair old rate and Aerospace coming back, and that's been really helpful.
Although, you know, beware lead time distortion and as I've said. In terms of inflation and supply chain, primary inflation, which is to say raw materials and labor, has been with us for a while. Secondary inflation, which is everything else now coming through. Input lead times are very stretched. It's, you know, every day there is another sort of supply issue. James will talk a little bit about inventories in just a moment and how we're dealing with some of that. It's not all bad news. Six months ago, we were talking about really tight labor markets. That does seem to have eased, particularly in the U.S., over the last few months. Not least because wage rates have gone up, particularly for the lower paid, which is where we were running vacancies.
Nonetheless, that is less of a problem than it was six months ago. I would characterize all of this as being ordinary course of business issues, but coming very much faster than is ordinarily the case. Frankly, one is either lucky or unlucky as to whether one trips up on some of these things. We have been lucky so far and managed to navigate them thus far, but it is hard work, and it isn't at all straightforward, but so far, so good in 2022. That's it in terms of the preamble. James and I got two or three slides on group results and then divisional results, and then I'll come back and talk a little bit about the outlook in just a moment. James, over to you.
Thanks, Ben, and good morning, everyone. Okay, turning across into slide 7, the usual financial summary here. As you've seen and heard this morning, this is a record half year performance for the group. Group revenue of GBP 82.3 million, up 18% against the prior period, with strong double-digit growth in all three divisions, as you can see across the top here. I'll add a bit of color to the divisional performance in just a moment. Bottom left, adjusted profit for tax is up 14% to GBP 9.8 million. Total basic earnings per share down 2% to 16.1 pence, though noting the prior period total was flattered by the adjusting items. Adjusted basic earnings per share up 12% to 16.6 pence.
Okay, moving across to slide 8. As usual, this slide shows the income statement on an adjusted and total basis and how we compare half on half. As before, the numbers being presented today are the adjusted results, and details of the adjusting items are disclosed in note 1 to the interim announcement. Here you can see the 18% revenue growth from the GBP 69.7 million in the prior period to the GBP 82.3 million, which has been driven in part by strong order books, strong order intake, and in part by price increases that have been implemented certainly over the last year or so across the group to manage the cost inflation that we have been seeing and experiencing. Operating profit is at GBP 10.4 million, with an operating profit margin of 12.7%.
The margin is down a little on the 13% reported this time last year, but up on the 10.9% reported for the full year 2021. We do have some currency retranslation benefit in these reported numbers, and at constant currency, revenue is up 16% and adjusted operating profit up 13%. Just a word on tax. The effective rate of adjusted tax has increased from the 21% in the prior period to 22%, and that 22% is consistent with the rates that we had for the full year 2021. At the bottom of the slide, you can see the Adjusted EPS, GBP 0.166, being an increase of 12% on the GBP 0.148 in the prior period. Okay, moving across to slide 9 and the cash flow.
Cash generated from operations increased by GBP 1.2 million, half on half to 7.2 million here. As a reminder, the group typically sees an outflow of working capital in the first half of the year, and that is what we have here. Working capital management, however, continues to be strong in the group, and this has enabled us to invest in certain inventory items where required and where appropriate in order to shore up security of supply, given the widespread supply chain disruption and challenges that we and everybody else has been facing. The working capital outflow of GBP 4.9 million reflects the revenue growth, but also the investment in inventory in the period. Moving down the cash flow then.
We have this year so far spent GBP 2.3 million on CapEx, which is an increase on the prior period as we've stepped up investments aimed at automation and productivity, and we do expect strong levels of CapEx spend to continue as we continue to invest in these initiatives around the group. The simplified net cash presentation at the bottom of the slide here shows that we had GBP 12.2 million in cash at the end of the period, up from the GBP 6.2 million this time last year and up from the GBP 10.2 million that we had at the full year. Just as a reminder, these net cash numbers exclude the IFRS 16 lease liabilities, which form parts of our reported net debt. Following the period end, we paid a further GBP 1 point...
Sorry, a further GBP 1 million in contingent consideration for the Kbiosystems acquisition as the business met its next earn-out target and GBP 1.6 million in final dividends, which were paid on the first of June. In respect to the interim dividend, the board has approved a further 6% increase, maintaining the group's progressive dividend policy. Moving across then to slide 10 and working from left to right. Aerospace & Industrial revenue of GBP 30.7 million is up 18% on the prior period. Aerospace volumes have started to return, as Ben has mentioned, which is encouraging. We have an increase for the first time since 2019, and our microelectronics part of the division has continued to grow and perform strongly, as has the U.S. Industrial Filtration business.
Divisional performance in Aerospace & Industrial is also starting to benefit from recent investments in the automation and productivity. Adjusted operating margins are at 10.1%, up from the 9.6% in the prior period and up from the 7.9% we reported for the full year 2021. Moving across to Laboratory, trading performance has continued to be strong. Revenue of GBP 30.8 million, up 22% on the prior period and up 19% if we exclude the impacts of Kbiosystems acquired in February 2021. All parts of the Laboratory division continue to perform well.
SEAL Analytical has had another good period, with sales up 18%, and we've also had a busy time of it with new product introductions across the division, including the AQ700 water analyzer in SEAL, which incorporates robotic handling capability and a range of lab consumables and extensions to the Kbiosystems offering. Margins in the division are running at a steady 19.8, and while we've not yet seen the softening in diagnostic-related demand to the extent expected following the height of the COVID pandemic, we do still expect this demand to soften over time. Lastly, moving across to Metal Melt Quality. Reported revenue of £20.8 million is up 13% on the prior period.
As we outlined this time last year, the prior period margin of 16.3% was flattered at that time by selling and marketing related costs being temporarily lower than they were pre-pandemic. These variable costs are now rightly starting to return, the margin of 13.5% is now moving to a more normal level for the division, with performance in the period being supported by continuing strong underlying demand from the aluminum markets and also from increasing volumes for our aero-related filters. Those are the divisional highlights. I'll now pass back to Ben for the summary outlook.
Yeah. Final slide is on page 11. It's really the outlook, which is hard to read, I think, at the moment. On the positive side, the reasons to be cheerful are very good underlying order position across all three divisions, and particularly so in Aerospace & Industrial and semiconductor schedules are particularly strong. That will carry us for quite a while, tempered with inflation and supply chain and the sort of a concern that, you know, if there is to be a recession, it can't be that long in coming. Porvair is susceptible to the effects of a destocking recession.
You know, the stuff that we make goes into warehouses generally and is swapped out on a maintenance schedule. If there is less economic activity, then that destocking process as it can have a disproportionate short-term, but disproportionate effect on our near-term volume. No sign of it, but you know, concern over that. What one does about that? Well, you can just continue to invest. If anything, we've increased the proportion of our CapEx that goes into productivity and automation, you know, trying to address areas where we think the cost base is gonna come under pressure and competitive dynamics are gonna be harder as we get through the inflationary cycle.
There's quite a lot of investment just being planned or just started now in those sorts of areas. Passing through cost increases, as I said to everybody, you know, we've always thought we had pricing power. We're about to find out. Actually, I suspect we'll find that we've got quite a lot of pricing power in much of what we do, but not everywhere, and we'll have to. That's very useful in the longer term, thinking about the portfolio, but we'll have to roll with those punches as they come. Generally speaking, therefore, we're in pretty good heart. We're certainly running very well absolutely at the moment. But who knows what shape the economy will be in the winter. A little bit of optimism tempered there.
That's all we've got for you this morning, ladies and gentlemen. If there are any questions, we'd be very happy to answer them now.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of John-Marc Bunce from Cenkos. Please go ahead.
Hi guys. Good morning. Absolutely cracking set of results. Congratulations on that. Can you sort of give us a flavor, like in this time of real geopolitical uncertainty, of what your geographic exposure is like? You know, you mentioned supply chain and the lockdowns in Asia, but also on the customer side. Then sort of looking sort of one step forward in terms of your acquisition strategy, in terms of, you know, what opportunities you're looking at beyond the U.K. borders. Thanks.
Thank you, John-Marc. James, do you wanna do the geographical split?
Yeah, sure. In terms of sort of the markets we sell into, you know, the U.S. is a huge market for us, probably sort of 45%-50% of our revenue, closely followed by Europe, probably sort of 20%-25%. Asia and U.K., probably 10% or 11% in the U.K. We have a small amount of exposure within China. We certainly don't think that's enough to trouble us. Our Chinese operation's relatively small. We do sell into China from SEAL, out of Germany, but I'd say relatively small in the grand scheme of things. We have some sales going into Russia. Not enough to trouble us, probably sort of GBP 400,000 or GBP 500,000 per annum.
You know, our developed markets probably continue to stay as is, and we're not seeing sort of too much disruption at this point in time.
In terms of, you know, where we're looking to invest in terms of acquisitions. Acquisitions for us is always a question of willing buyer, willing seller. It's not always straightforward just to go out and buy stuff. Gotta find stuff that's for sale that we can afford and are prepared to pay for. At, you know, with that as a given, we are particularly interested in two areas. In industrial filtration in northern Europe. We are underweight. We ought to be bigger than we are. We've got decent scale in industrial filtration in the U.S. and in the U.K., but we're underweight in Europe. We've been looking in that area quite actively.
We bought Royal Dahlman a couple of years ago now in the Netherlands, and that has been a good acquisition. We'd like to build on that. You know, half of what we do is in the States. We've got good sort of structure and management teams there. We're definitely looking in the States, both in industrial and particularly in laboratory actually, which the last big acquisition we did in laboratory was J.G. Finneran about four years ago. We did Kbiosystems last year. Both of them have gone really well and are knitting together nicely, and we'd like to add to either or both of those.
Okay. Thanks, guys. Just one sort of small follow-up. Are you seeing much sort of onshoring of manufacturing from your Western customers, and is that likely to benefit you?
Yes, we definitely are. We mentioned this in the February results, so not that long ago that while supply chain disruption was a problem, it was mitigated in the U.S. particularly by quite significant, surprising onshoring. I think I mentioned at the time, we do a list periodically of, you know, recent new customers. Because this is quite a sticky business, you know, it's generally relatively short list. But in the U.S., I think either March or April, there were about 15 or 20 names on it, and many of the people we hadn't even come across before. They were all U.S.-based customers who had decided that they didn't wish to have long supply chains anymore. That is definitely helping the U.S. businesses.
Great. Thanks, guys. That's it from me. Cheers.
Thanks. Thanks, John-Marc.
The next question comes from the line of Andrew Shepherd-Barron from Peel Hunt. Please go ahead.
Good morning. Yes, I agree, excellent set of results. Well, congratulations. A couple from me. One is just in terms of long-term growth opportunities. Is there? I mean, I've always thought that you are pretty well invested capital-wise, capital equipment-wise. But is there any area which you could become, should we say, put more money into which would take you into the new areas rather than necessarily making an M&A deal? Although always happy to hear more about the M&A story, of course. That would be the main question for me. Thanks.
The answer to that is not straightforward. We have in the past made investments that have allowed us to have made new products to take us into new areas. Actually, this time two years ago, we were talking about that because the world was so short of COVID-related kit that was a good moment to invest, produce the product and quickly get through all the customer accreditation hoops that one needed to because, you know, force majeure and all the rest of it. In normal times, that's quite hard to do. I mean, it's the reverse side of the stickiness of the business. It is very difficult just to buy a piece of kit, suddenly make a new sort of filter and tell the world, you know, "This is great.
We've got it." You then have to go through all the customer accreditations. You know, that's difficult if you wanna grow through market share. It's a bit more comforting if you're already owning the market share. Generally speaking, to break into new areas, we have acquired businesses that have those accreditations. But there's still a lot that we can do in terms of investing in the business. Not least because, you know, machining technology and measuring technology, test and measure, measurement technology, welding technology, you know, comes on all the time. What some of this equipment is now capable of doing is quite remarkable. We have invested, for example, in two very high-tech latest machine tool milling machines.
Milling machines, lathes and machining tools, which are going into the aerospace business. Which will dramatically improve lead time and other things, quality, the amount of inspection that is required and so forth. There's still quite a lot of improving in our existing businesses that we can do. I hope, you know, we will have quite a lot of that done in the next six to eight months.
Okay. Great. Thank you. The next question comes from the line of Maggie Greer from Stifel. Please go ahead.
Morning, Ben. Morning, James. Thanks for the presentation. Just two very quick questions from me. The Laboratory 19.8% margin, and they keep going up, and I know you have said we should expect some pullback from COVID times in them. If you could give us a view on where you think perhaps we should be thinking a normalized margin would hover, that would be helpful. Secondly, there is or continues to be quite a fair bit of concern about energy-related demands in continental Europe. Can you just tell us or remind us the use of energy on your footprint in both Germany and the Netherlands, and if we should be thinking anything on that basis? Really that's all for me, because I think you've been very clear on everything else.
Okay. Let's take the second one first. Energy-related demand in the U.S., in the European footprint. Very little, Maggie. We have 1, 2, 3, 4 sites in Northern Europe, and they are all essentially design, engineering and machine assembly sites. Very low sort of. They don't use gas, for example. There's very normal electricity users. Offices, if you like, in the main. In terms of lab margins, we said for a long time, you know, that. Looking across the industry, if you're in the laboratory sector, but you're not in blood, in healthcare, you should be able to do 15%-17% operating margins. We're running a little bit ahead of that. I suspect that will drift back.
You know, as cost pressures increase and our ability to pass them on gets more difficult, et cetera, et cetera. Certainly sustainable at those levels.
Okay. One last question.
I mean, you've alluded to this all throughout the presentation. Obviously the whole world, every company is worried about recessionary pressures.
You have invested a lot in terms of efficiencies and automations. You alluded to the fact that you're still doing it, and it's quite clear that you have a lot of through cycle exposure in the business.
Some more cyclical exposure. If we're thinking about the shape of a recession, and possibly sharp and short.
What are the immediate things that you can do to kinda almost curate your own soft landing other than productivity and investment? Are there other shift patterns or things we should be thinking about?
Yeah, you can. I mean, there's quite a lot you can do. We run a level of temps and overtime deliberately so that we have a bit of flex. We run through the processes a proportion of subcontracted work again so that one can pull back from that in the near term if one needs to. Some operations are more highly geared than others and they tend to be more vulnerable. If it is a standard de-stocking recession, when we hit. I'll give you a great example. February 2009, I was with, as in Artemis, presenting to a man called Mark Niznik, who you all know.
He said, you know, and the exact conversation. I said, "No, no, there's no sign of it yet." I, you know, and I literally came out of the meeting and, you know, we had our weekly order report and it had plummeted. When it strikes, it can strike very quickly.
I'm, you know, I'm saying again, there's no sign of it yet, but I'm not having another Niznik moment. It's very quick, it's quite brutal, but it is over in a period of weeks and you g-
You have a sort of Fibonacci bounce and you come back to a proportion of the levels that you were at before. Actually, what I think will happen this time is that lead times are so long that people have over-ordered, I suspect, and what we'll have is a period where orders just dry up. And the order book is allowed to run down, and then people will start trying to delay shipments and what have you. I think we might be able to manage it to a degree, but a de-stocking recession is a de-stocking recession, and you just have to tighten your belt and, you know, suck it up.
Sorry, I'm gonna ask one last tricky question.
Given where we are in the aerospace cycle, because that hasn't particularly ramped back up, I appreciate your destocking comment on pretty much every other sector.
Are you feeling the same way in Aerospace?
No, it doesn't happen quite the same way in aerospace.
It's a much longer cycle. You know, as long as the airplane is flying, you know, it has to follow the same maintenance routine. The fact that it's flying half full because consumers are, you know, sitting on their hands is not so much of an issue. It's less troublesome.
Fabulous. Thank you so much. Very clear.
All right, Maggie.
Just as a final reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Our next question comes from the line of Tom Fraine from Shore Capital. Please go ahead.
Thank you. Morning. I was just wondering if regarding the margin, I'm not sure if I missed it from the last question, but what would you say is the normalized margin for Laboratory? And also if you could just give us a bit of a flavor of how cyclical demand for Laboratory is, and how susceptible that is to de-stocking. And you know, would that have a major impact from an economic downturn?
15%-17% is the answer to the first part of the question. In terms of destocking in Laboratory, it's a really good question because actually we built the Laboratory division, you know, more recently. We've only been through one recession, and that was COVID, which, you know, perhaps wasn't a normal recession with it. We own SEAL Analytical, which was, you know, a significant part of it in 2009, and that didn't miss a beat really because you have to test water, you know. You just have to crack on with that. That, I mean, I think that might have been down 10% in 2009. That's more like Aerospace than Industrial.
On the other side of things, it. You know, environmental laboratories keep going, analytical laboratories generally keep going, but perhaps some of the industrial related laboratories are less so. You would expect to see a pullback, but, perhaps not as dramatic as you would in a standard industrial model.
Okay. How much of that is industry related for laboratory?
Yeah. Good question. Maybe 20%.
How much exposure do you have to semiconductors?
Growing all the time. We've got a dedicated semiconductor line, and it is about GBP 7 million, something like that, James?
Oh, that? Yeah, a bit more at the moment. Yep.
Is it?
Okay. In terms of the H1 performance, what was Aerospace's growth if you strip out Industrial?
I don't think we published it. Did we this time, James?
No, we haven't. No, not something like that.
We do sometimes, Tom. I don't think we have this time.
In terms of H2, have you got costs increasing as usual in H2 and therefore you expect margins for the full year to be a bit low in H1?
Certainly cost increases are continuing to come through, you know, every day. It's more a question, to what extent can you continue to cover those by price increases? Can you get ahead of them, you know, in price increases? That really is an unknown. I mean, that's the objective, but whether one is successful or not is hard to judge.
Okay. Finally, in terms of the CapEx, you said that it's likely to be a bit higher than usual going forward. Have you got any guidance in terms of, maybe a percentage of sales or just an absolute figure for the short term and the medium term?
Yeah. Well, our sort of annual run rate is about sort of GBP 5 million, James, isn't it, of CapEx?
Yeah. Probably sort of just over, yeah, 4-5 in terms of averages, what's coming through.
Yeah.
We've done GBP 2.3 million year to date.
that's what you should expect, Tom.
Okay. Thanks very much.
All right.
Thanks, Tom.
As there are no further questions, I'll hand it back to the speakers.
Very good. Well, thank you all very much. Have a good day, have a good week. If you have got any other follow-ups, James and I are here for the whole week, so do call.
Thank you.
Thanks very much, everybody. Have a good day.
Thank you, everybody.
This concludes our conference call. Thank you all for attending. You may now disconnect your line.