Final Results

RNS Number : 0213Z

Pressure Technologies PLC

12 December 2017

 

 

 

 

 

 

 

 

12 December 2017

Pressure Technologies plc

("Pressure Technologies" or the "Group")

2017 Full Year Results

Pressure Technologies (AIM: PRES), the specialist engineering group, announces its full year results for the year ended 30 September 2017.  

John Hayward, CEO of Pressure Technologies, said:

"The reorganisation in recent years means that there are significant operational gearing gains to be made as volumes increase. The recent share issue improves the Group's ability to support large-scale organic growth, and with no immediate major capital expenditure required the Group is in good shape."

Financial

●    Revenue £38.4 million (2016: £35.8 million)

●    Adjusted operating profit*  £1.1 million (2016: loss £(0.4) million)

●    Reported loss before tax of £(1.9) million (2016: loss £(0.4) million)

●    Adjusted earnings per share of 6.3p (2016: loss (2.6)p***)

●    Reported basic earnings per share loss of  (7.9)p (2016: earnings 4.4p)

●    Operational cash inflow before working capital movement** of £2.5 million (2016: £0.5 million)

●    Closing net debt at £11.1 million (2016: £6.6 million)

●    Post year-end fundraising of net £4.8 million

*before M&A costs, amortisation and exceptional charges and credits 

**before payment of redundancy and reorganisation costs

***from continuing operations

Operational

●     Precision Machined Components Division order intake more consistent with stronger second-half

●     Manufacturing gross margins increased to 35% (2016: 31%)

●     Acquisition of Martract in December 2016

●     Creation of PMC brand to give improved customer offer

●     Alternative Energy restructured from a regional to a functional model and broke even (2016: loss £(1.1) million)

●     Full review of management capability resulting in additional senior management appointments

●     Investment in IT systems to improve communication and promote collaboration

For further information, please contact:

Pressure Technologies plc John Hayward, Chief Executive Joanna Allen, Group Finance Director Keeley Clarke, Investor Relations	Today Tel: [phone] Thereafter, Tel: [phone] www.pressuretechnologies.com
Cantor Fitzgerald Europe (Nominated Adviser and Broker)	Tel: [phone]
Philip Davies / Will Goode
Tavistock Simon Hudson	Tel: [phone]

COMPANY DESCRIPTION

Company description - www.pressuretechnologies.com 

With its head office in Sheffield, Pressure Technologies was founded on its leading market position as a designer and manufacturer of high-pressure components and systems serving the global energy, defence and industrial gases markets. Today it continues to serve those markets from a broader engineering base with specialist precision engineering businesses and has a worldwide presence in Alternative Energy as a global leader in biogas upgrading.

Pressure Technologies has four divisions, Precision Machined Components, Engineered Products, Cylinders and Alternative Energy, serving four main markets: oil and gas, defence, industrial gases and alternative energy.

Precision Machined Components

●     Al-Met, Mid Glamorgan, acquired in 2010 www.almet.co.uk 

●     Roota Engineering, Rotherham, acquired in March 2014 www.roota.co.uk 

●     Quadscot, Glasgow, acquired in October 2014 www.quadscot.co.uk 

●     Martract Limited, Barton-on-Humber, acquired in December 2016 www.martract.co.uk 

Engineered Products 

●     Hydratron, Manchester, acquired in 2010 www.hydratron.com 

Cylinders

●     Chesterfield Special Cylinders, Sheffield, IPO cornerstone in 2007 and includes,  CSC Deutschland Gmbh, which is based in Dorsten, Germany and Chesterfield Special Cylinders Inc. which is based in Houston, USA www.chesterfieldcylinders.com 

Alternative Energy

●     Greenlane Biogas, Sheffield, UK; Vancouver, Canada and; Auckland, New Zealand acquired in October 2014 www.greenlanebiogas.com 

CHAIRMAN'S STATEMENT

Overview

I look back on this past year for the Group as one of preparing for future growth across all our Divisions, whilst at the same time maintaining stability against a backdrop of very challenging oil and gas market conditions.

During the past three years, it is estimated that global oil and gas Capex and Opex spending has reduced by some 30%.  Reports indicate that Capex and exploration spending will have reduced by $1 trillion from 2015 through 2020.   The net impact on job losses worldwide is estimated at 440,000, with 124,000 in the UK alone.

Within the Group, we have reacted to these unprecedented market conditions by reducing our headcount by 40%, but have been careful to protect our knowledge and skills base, to be well positioned to respond to increased demand when it arrives.  We have also invested in further development of our people and added key leadership and sales resources across the Group.   Given the tough market conditions we've traded through for the past three years, I'd like to express my respect and admiration for the way our people have steadfastly risen to the various challenges we've encountered.

In addition to developing and adding to our skills base, we have invested in systems and processes that make us more efficient and productive and have restructured the Alternative Energy Division from a regional to a functional model, which will improve efficiency and the ways we win and execute projects.

It is heartening to report that, towards year-end, we were approached by institutional investors who expressed a desire to make further investment in the Group.  I see this as a sign that many market observers anticipate that the oil and gas market is about to rebound and they see Pressure Technologies as an enterprise that has been resilient in the downturn and is primed for growth.  This investment gives us more fire power to react to opportunities as they arise.

Whilst the oil and gas market has been in the doldrums, we have of course been busy pursuing other industrial sectors.  The biogas market continues to offer substantial potential, but has been frustratingly slow to deliver due to a whole range of factors, but we remain committed to retaining and building on our position as the market leader within our sphere.  CSC's market leadership in large high-pressure cylinders maintains our enviable position as the company of choice for many of the world's navies and air forces.

In December 2016, we acquired Martract, a business that specialises in the grinding and lapping of ball valves.  Martract is a company that we monitored for some time as a potential add-on to our PMC companies. It offers us potential for vertical integration by extending our core skill sets, along with pull-through opportunities into new industrial sectors, as 60% of Martract sales come from outside the oil and gas market.

Results

I am pleased to report that Group revenue increased to £38.4m, a 7.5% increase on last year, whilst adjusted operating profits were £1.1m, a substantial improvement from a loss of £0.4m recorded last year.  The increase in revenue was primarily driven by a 40% increase in sales seen in Alternative Energy on the back of a strong opening order book.   The improvement in adjusted operating profit was primarily driven by Alternative Energy, which broke even for the first time since the acquisition of Greenlane and the contribution from Precision Machined Components, including nine months of Martract.

Operating cash inflow before movements in working capital and reorganisation and redundancy costs was £2.5 million, significantly better than £0.5m recorded last year.  Net debt was £11.1 million, an increase of £4.5m versus last year, primarily due to the acquisition of Martract and net investment in working capital.  Post year-end the Group completed a share placing, raising net proceeds of £4.8m.

Despite the fact that this year's financial results are a clear improvement over last year, the board has resolved that no dividend shall be paid to shareholders this year, as cash reserves will be key to funding profitable growth in the coming months.

Outlook

The level of optimism within the oil and gas market is increasing by the month.  Major oil companies reported healthy profits for quarter-three 2017, which is a sure sign that their attentions will start to move towards investment and growth.  Recent assurances by OPEC that production cuts will be sustained until supply-demand has been rebalanced is encouraging.  Even the top three US-based shale producers have issued a cautionary note on the speed and level of investment that is prudent in order to sustain a profitable oil price.

Renewable energy is becoming more topical amongst the public at large and governments are making bold statements about moving away from carbon-based fuel sources.  Whether some of these rather ambitious political statements are achievable remains to be seen, but the general increase in awareness of what renewable energy has to offer is helpful.   The potential market for biogas is enormous and we remain confident it will materialise and offer us substantial opportunities for increasing sales and profits.

Given that we are already working on the design of cylinders for the Dreadnought-class of nuclear-powered submarines for the UK Ministry of Defence, which offers us a visible order pipeline for some years ahead, it is pleasing to conclude that all three of our other major industrial markets look promising for the foreseeable future.

Given a more positive outlook in our core markets and the recent fundraise that has bolstered our financial resources, supported by steps we've taken to ready our businesses for growth, the Board is optimistic that the Group is well prepared to capitalise on opportunities as they arise.

BUSINESS REVIEW

The Group's core technical skills are highly valued by our customers, many of whom are pioneers in what they do. They choose to work with us because of our ability to transform their innovative ideas into high-quality, safety-critical products where the opportunity cost of failure is often orders of magnitude higher than the cost of the product. This creates strong relationships built on the honest and open way in which we do business and our culture of delivering excellence.

We have an unrivalled heritage, with over 120 years of experience and knowledge making us clear leaders in our markets. Chesterfield Special Cylinders is the world's leading supplier of cylinders and inspection services into the naval and military aerospace markets. Our Precision Machined Components and Engineered Products businesses are trusted suppliers to the world's leading oil and gas innovators. Greenlane Biogas is a pioneer in biogas upgrading, a world leader with the largest installed base of upgraders, having supplied the world's two largest upgrading projects and recently developed the world's largest ever upgrader, the Kauri.

The year witnessed further significant changes in the Group. The impact of major reorganisation in our three manufacturing Divisions: Precision Machined Components, Engineered Products and Cylinders undertaken in prior years began to show material bottom-line impact particularly in PMC and Cylinders. Further progress was made in the Alternative Energy Division, which broke-even, whilst at the same time undergoing a radical restructuring.

The key points for the year are:

Manufacturing Divisions

Precision Machined Components Division ("PMC")

	2017 £m	2016 £m	2015 £m	2014 £m	2013 £m
Sales revenue	10.4	10.7	18.8	13.0	6.4
Adjusted operating profit	1.8	1.4	4.5	3.0	1.0

PMC comprises Al-Met, Roota Engineering, Quadscot Precision Engineers and Martract - which was acquired in December 2016. Al-Met produces wear resistant components in a range of high alloy steels and tungsten carbide for using high-pressure control valves, designed to regulate flow volumes in extremely demanding applications in the subsea and surface oil and gas industries. Roota and Quadscot make a wide range of components for oil and gas pressure systems and down-hole tools, with Roota generally focusing on larger, longer product and Quadscot on smaller components, manufactured in a range of high alloy materials.  Martract specialises in grinding and lapping ball and seat assemblies and gate valves, which is highly complementary to the Division, enabling it to offer a product that is unmatched by competitors.

Significant progress has been made in the Division since the second-half of the 2016 financial year, which marked the low point for order intake from the core oil and gas market. In 2017, first and second-half sales were 1.7% and 10.4% higher than the second-half of 2016 respectively.

Increasing order volumes have given more consistent order intake patterns for Roota and Al-Met. This has resulted in improvements in gross margins, as the benefits of latent capacity created by investment in new technology and better productivity have been realised.  Quadscot remained affected by reduced customer spending throughout the majority of the year. A combination of increased activity from core and new customers lifted its final-quarter sales, which has continued into the new financial year.

The appointment of a Business Development Director in March has resulted in winning work from new customers, a trend that is expected to continue. To date, the Division has secured orders from eight new customers, with a focus on technical equipment manufacturers. The purchase of Martract in December 2016 is giving further opportunities to secure new customers, since 60% of their customers are outside the oil and gas industry. As a result, opportunities exist to cross-sell the Division's capabilities into other industries, such as chemical processing and nuclear decommissioning.

The strategy for PMC is to grow revenue and profits by building on the existing businesses through collaboration, cross-selling, product and key-account expansion, as well as the development of new markets that offer growth and strengthen the Division's resilience.  Any acquisitions will be complementary to this positioning.  In furtherance of this strategy, a rebranding exercise has been completed to give a common "feel" to logos and websites. This involved the creation of a PMC brand, which is important when dealing with major customers, as it highlights the strength in depth of the Division.  Promoting the brand highlights our ability to minimise supply chain risk, as we are able to move work between sites. At a time when our customers are also looking to reduce the number of companies on their Approved Vendor Lists ("AVL"), contracting with the PMC Division gives them four vendors for one entry in their AVL.

Near-term prospects for PMC remain positive, with our core customers expressing a more upbeat outlook for 2018 and significant potential for growth from new customers and markets. The Division is recruiting additional skilled engineers and operators and investing in new equipment to benefit profitably from increasing sales revenue.

Engineered Products Division ("EP")

	2017 £m	2016 £m	2015 £m	2014 £m	2013 £m
Sales revenue	3.9	4.1	6.7	8.1	7.3
Adjusted operating profit/(loss)	(0.5)	(0.3)	0.1	1.6	1.1

EP manufactures a range of Hydratron-branded air-operated, high-pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs, mainly for use in the oil and gas sector.

The Division continued to be impacted by reduced capital expenditure and discretionary spend from its core oil and gas market, so sales were 7% lower than 2016. The second-half of the financial year saw some patchy improvement in order intake and the engineered systems sales team was expanded to meet this increased level of activity. Action taken in 2016 to reduce costs and improve productivity contained the losses in 2017.

Considerable effort was focused on expanding the number and quality of distributors, with seven new distributors appointed, which should yield increasing revenues as 2018 progresses. The first-quarter of this new financial year has seen a continuation of the improved ordering pattern, with a more profitable mix of projects but, as yet, there is no clear pattern of improvement in their core oil and gas market.

Cylinders Division

	2017 £m	2016 £m	2015 £m	2014 £m	2013 £m
Sales revenue	8.4	9.5	14.3	21.4	17.3
Adjusted operating profit	1.1	1.1	2.1	3.8	3.6

Chesterfield Special Cylinders ("CSC") supplies a range of high-pressure gas cylinder systems into the defence, oil and gas and industrial gases markets. Revenue for the year was lower by £1.1 million, as revenue from oil and gas reduced again. However, operating profit was maintained through a better mix of higher added value work in other markets.

The defence market is now the mainstay of the business, where the Division has over 80 years of experience in providing cylinders and services to the naval and military aerospace markets. This heritage in a highly demanding market, makes CSC the natural choice for cutting edge product development, as evidenced by the award of cylinder design for the Dreadnought class submarine, Trident's successor. Cylinders for the first boat-set will be delivered during 2018, along with further deliveries into overseas markets. Business Development efforts continue to focus on breaking into the substantial US defence market and the Pittsburgh sales team sales team has recently been strengthened.

For CSC, the oil and gas market remains depressed. The largest volume of sales has traditionally come from Air Pressure Vessels (APVs) for motion compensation systems on drillships and semi-submersible drilling rigs for the deepwater subsea sector. Fewer than 50% of the available vessels are currently utilised in this market and no major build program is forecast. Revenue in 2017 was limited to small projects for floating cranes; that said, CSC was awarded a contract to supply APVs for delivery in 2018 for a new drillship, the only such order placed in the last three years.

Revenue in the industrial gases market has largely come from service work with an upturn in the volume of high-pressure gas trailer statutory re-test and refurbishment arising from the phasing of prior capital expenditure by the Gas Majors. This work is forecast to increase further in 2018 and, together with our integrity management offering into the defence and oil and gas markets, will help underpin continued profitability. It is worth noting that since 2014, higher margin service related revenue has grown by almost 45%.

Capital investment in 2017 was centred on the ultra large cylinder forge project which is now complete. Investment in 2018 is planned to improve CSC's small cylinder spinning capability, which will increase productivity and also the potential product range.

The outlook for 2018 is positive, underpinned by the Dreadnought work and further expansion of CSC's service offerings.

Alternative Energy Division ("AE")

	2017 £m	2016 £m	2015 £m	2014 £m	2013 £m
Sales revenue	15.8	11.3	14.0	8.4	1.1
Adjusted operating profit/(loss)	0.0	(1.1)	(1.1)	1.1	(0.5)

AE is a designer and supplier of equipment used to upgrade biogas produced by the anaerobic digestion of organic waste into high-quality methane, which is suitable either for injection into the gas grid, or used as vehicle fuel. It trades under the name of Greenlane, the long-established market leader in water-wash biogas upgrader equipment acquired by the Group at the beginning of financial year 2015.

Against a backdrop of a further radical reorganisation, the Division broke-even, on an adjusted basis, for the first time since the acquisition of Greenlane. During the first-half of the year, a full review of the management structure and effectiveness was conducted. A functional structure has been implemented with the Division now centred in Vancouver, Canada. Sales and engineering support are still regionally based with Vancouver covering the Americas and China; Sheffield in the UK will be responsible for Europe, Africa and Asia. As a result of the reorganisation, headcount has been reduced by 20%, whilst at the same time, sales resources have been strengthened and a new President for the Division joined in November 2017.

Product development remained a priority for the Division with a first order received for a Kauri upgrader, the world's largest single upgrader plant, which is currently being commissioned in the USA.  A second generation, entry level, Kanuka upgrader has also been installed and commissioned in Finland. In addition to core water-wash technology, Greenlane is currently commissioning a biogas plant using pressure swing adsorption technology (PSA) in California.  The Division also offers membrane technology for cleaning gas, which differentiates Greenlane as the only "technology agnostic" provider of biogas upgraders in the world.

The closing order book at year end was £5 million, compared to £14 million at the end of 2016.  The significant pipeline of good quality sales opportunities proved frustratingly slow to convert to orders, partly due to the disruptive effect of the reorganisation, but in the main external factors were the root cause.  In the UK, a proposed change to the Renewable Heat Incentive, which favoured biogas upgrading, was initially delayed by a drafting error in the legislation, then further delayed by the general election and is now expected at the end of the first quarter of calendar year 2018.  In North and South America, several potential orders were delayed due to customer issues around project funding and environmental permits.  Since year end, one contract has been secured in the UK and three projects are at final negotiation in the UK, USA and Brazil.

The sales pipeline has a value in excess of $200 million and the market in the USA is set for rapid expansion, a major reason for the centring of the Division in North America. To rapidly extend market reach, AE is in negotiation with a number of potential collaborators with allied technology, for example anaerobic digester manufacturers, to pool opportunities and present a "one stop shop" to potential customers. Pooling will also give the opportunity to bring third-party funding into projects where our current individual projects are too small to warrant investors' attention. At the same time, AE is looking to licence upgrading technology for markets that are either too small, or complicated for direct selling.

People

The Group has undergone substantial downsizing during the past three years in response to the downturn in the oil and gas market, resulting in a 40% reduction in headcount overall.  We have, however, been careful to protect our knowledge and skill base and taken steps to prepare the Divisions for the inevitable market recovery.  During the course of 2017, we have undertaken a thorough review of management competence, capability and bench strength throughout the Group.  As a consequence, a number of development programs have been implemented and additional management resource has been hired in the shape of a Head of HR at Group level and new Divisional Directors in AE and PMC.

As ever, we remain committed to training, education and continuous development. The apprentice levy will have no impact on the Group as we expect to fully recover this through our apprentice and management training programmes. We work in a high-technology environment where continuous improvement in our levels of training and education is essential if we are to maintain competitive advantage.

To improve communication and collaborative working across the Group, office systems are in the process of migration from local server based software to Google Suite, thereby allowing real time sharing and collaboration between individuals and businesses. This has been completed for Head Office and the Manufacturing Divisions and will be extended to Alternative Energy during 2018. Health and Safety management is now run on a group-wide basis with regular meetings involving all Divisions and this model has been extended to include cybersecurity and information technology management in 2018.

All manufacturing businesses in the Group, with the exception of Martract, now have OH SAS 18001 accreditation for health and safety. Martract will gain this as a branch of Roota Engineering during 2018. In the Alternative Energy Division, Vancouver does not yet have accreditation and is targeted to achieve this by the end of 2018 as is Head Office.

Outlook

The outlook for Cylinders and Precision Machined Components is much stronger than it was a year ago. Defence work in Cylinders and more stable ordering patterns in PMC gives far greater visibility and confidence in forecasts. Engineered Products is still experiencing unpredictable ordering patterns but at a level that makes the business sustainable. Alternative Energy remains in a position of unfulfilled promise but the reorganisation and market dynamics give cause for optimism.

Across all its markets, the Group is well positioned with solid, long-term relationships with global blue chip customers and a growing pool of new customers, distributors and partners. Renewed confidence in the oil and gas market will eventually extend to growth in Cylinders and Engineered Products, as it is currently doing in Precision Machined Components.

The reorganisation in recent years means that there are significant operational gearing gains to be made as volumes increase. The recent share issue improves the Group's ability to support large scale organic growth, and with no immediate major capital expenditure required the Group is in good shape.

John Hayward

Chief Executive Officer

12 December 2017

 

FINANCIAL REVIEW

Highlights

●    Revenue up 7.5% to £38.4m (2016: £35.8m)

●     Adjusted operating Profit* £1.1m (2016: loss £(0.4)m)

●     Adjusted operating cash inflow^*** £1.0m (2016: £5.1m)

●     £3.6m Acquisition of Martract Ltd

●     Revenue per employee** up 27% to £161k(2016: £126k)

●     Return on Revenue 2.9% (2016: -1.1%)

●     Closing Net Debt £11.1m (2016: £6.6m)

●     Post year-end fundraising of £4.8m

*excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits. Including 9 months post-acquisition result of Martract

** based on straight average number of employees

***before payment of redundancy and reorganisation costs 

I am pleased to present the results of what has been a very busy and progressive year for the Group.  The Manufacturing Divisions are beginning to experience an uplift in activity:  on a like-for-like basis, second-half oil and gas sector revenue was a further 3.4% up on the first-half, demonstrating that the second-half of 2016 was a clear low point.  We have also seen profitability continue to improve. Like-for-like, the 3.7ppt year-on-year increase in gross margin percentage is a reflection of both the impact of actions taken by management in recent years, plus the volume and mix of work in the high margin niche sectors supplied by the Group. 

Our acquisition of Martract was completed in December 2016 and in the nine months since acquisition the business has contributed £0.3 million of operating profit.

Alternative Energy has delivered the contracts in the opening order book posting £15.8 million total revenue in the year (2016: £11.3 million) of which £12.6 million was for biogas upgrader projects (2016: £8.9 million).  Expected gross margin improvement has, however, yet to be seen due to cost overruns on certain European projects, and reported gross margin is slightly lower than prior year at 17.3% (2016: 17.4%). 

Across the Group, we have continued to invest in new products and capital equipment for both production capability and IT systems.  Some £0.3 million in plant and machinery has been invested in the Manufacturing Divisions, £0.6 million in new product development and a further £0.4 million in group-wide IT.

In the short-term, the financial priorities continue to focus on the reduction in net debt with working capital management to the fore.  While debtor days are generally acceptable in the Manufacturing Divisions, we have seen certain oil and gas customers routinely stretch payment beyond terms at quarter-ends. Good progress has however been made in the control and reduction of raw material and consumable stock, particularly in the EP Division.  This, combined with the phasing of contract revenue, has resulted in a net investment in working capital in 2017 of £1.5 million (2016: net benefit £4.6 million).

The post year-end oversubscribed share placing, which resulted in net proceeds of £4.8 million, immediately reduced net debt and positions the Group well to capitalise on the clear momentum in market opportunity being experienced, particularly in the PMC Division.

Trading result

Manufacturing

●     Revenue down 7.4% to £22.6 million (2016: £24.4 million)

●     Gross profit margin 35.4% (2016: 31.0%)

●     Adjusted operating profit* up 12.5% to £2.4 million (2016: £2.2 million)

●     Return on revenue 10.7% (2016: 8.8%)

●     Revenue per employee** up 13.1% to £124,000 (2016: £109,000)

●     Adjusted operating cash inflow***£2.7 million (2016: £5.0 million)

●     Cash conversion 1.1: 1 (2016: 2.4:1)

●     Restructuring costs £0.1 million (2016: £0.8 million)

PMC and CSC are beginning to experience an uplift in activity, with increased confidence in the oil market providing PMC with a stabilised and increasing order-load, whilst strong defence contracts secured in CSC stretch into the medium-term.  These two divisions contributed £2.9m of operating profit in 2017, an increase of 18.4%.  Return on Revenue has increased by 3.4ppt to 15.5%, demonstrating the benefits of both the mix of work in CSC and the volume of activity in PMC, underpinned by cost reduction initiatives implemented in recent years.

Restructuring benefits in EP are still to be reflected in the bottom-line, as low oil and gas volumes continue to impact. Second-half revenue increased 23% over the first-half, with a 7.6ppt increase in Return on Revenue. Whilst encouraging, this was not enough to exceed their break-even point. The current low market volumes magnify the effects of the mix of work and, together with the impact of lower spares sales in the summer months, was a contributory factor in the second-half operating loss.

The Manufacturing Divisions £2.4 million adjusted operating profit for the full-year was slightly ahead of the latest market expectation (£2.3 million).

Alternative Energy

●     Revenue £15.8 million (2016: £11.3 million)

●     Gross profit margin 17.3% (2016: 17.4%)

●     Adjusted operating profit* at break-even (2016: loss £(1.1) million)

●     Return on revenue 0.0% (2016: loss (9.4)%)

●     Revenue per employee** up 40% to £353,000 (2016: £242,000)

●     Adjusted operating cash outflow*** £(0.8) million (2016: inflow £0.9 million)

●     Closing order book £5.0 million (2016: £14.2 million)

●     Restructuring costs £0.4 million (2016: £0.8 million)

Revenue from the installation and commissioning of biogas upgraders in the year was delivered from the opening order book.  No new biogas upgrader projects commenced in the year, although there was a scope increase on one project.  Non-upgrader sales for aftermarket support and other products were £3.2m.

Gross margins were adversely impacted in the second-half due to cost overruns on certain European projects, which negated the benefit of the 5.5ppt margin improvement in the first-half versus the second-half of 2016, resulting in a marginally lower gross margin for the full year.

The Division began restructuring in March 2017 and this was largely complete by the fourth-quarter.  The benefits of this have yet to come through to the operating profit and Return on Revenue, which in the second-half was adversely impacted by both the weighting of sales to the first-half and lower gross margins. 

The result for the full-year was in-line with the latest market expectations.

Central costs

Unallocated central costs (before M&A, amortisation on acquired businesses and exceptional charges) were £1.4 million (2016: £1.5 million).  The reduction continues to reflect the group-wide focus on cost reduction, investment in IT systems and combining of roles.

In respect of the Group's various share option plans a share based payment cost of £0.1 million has been recognised in adjusted operating profit (2016: £0.3 million).

Exceptional items

Reorganisation and redundancy costs in the year were £0.7 million (2016: £0.7 million), which predominantly relate to the AE Division and Group.

M&A related exceptional items and amortisation costs were £2.0 million (2016: £1.1 million credit) and include the £0.6 million write-back of the deferred consideration of Martract Limited.  Underlying amortisation charges were £2.4 million compared to £2.2 million in the prior year, the increase being solely due to the acquisition of Martract.

Taxation

The tax credit for the year was £0.8 million (2016: £1.0 million).

The loss before tax, effect of the change in tax rates in the year and adjustments in respect of prior years have all contributed to the tax credit in 2017. The applicable current tax rate for the year is 19.5% (2016: 20%). The reduction in rate of tax and the utilisation of losses have resulted in a lower effective tax rate than the current rate of tax.

Corporation tax refunded in the year totalled £0.2 million (2016: £0.5 million), which relate to the UK and Canada.

Foreign Exchange

The Group has exposure to movements in foreign exchange rates related to both transactional trading and translation of overseas investments.

In the year under review, the principal exposure arising from trading activities, was to movements in the value of the Euro and the US Dollar relative to Sterling. As Group companies both buy and sell in overseas currencies, particularly the Euro and the US Dollar, there is a degree of natural hedge already in place.

In the AE Division, currency exposure is actively managed at the outset of a project and where appropriate forward contracts taken out to cover the majority of the exposure.  Exposure (both translational and transactional) to the movements in the USD versus the CAD and GBP are expected to increase as the focus of the AE Division turns to this market. 

In 2017 the net loss recognised in adjusted operating profit in respect of realised and unrealised transactions in Euro, US Dollar, Canadian Dollar and New Zealand Dollar was immaterial (2016: net gain £0.7 million).  In 2016, a loss of £0.5 million was recorded below adjusted operating profit in respect of the retranslation of the deferred consideration liability denominated in New Zealand Dollars.

As at 30 September 2017 there were no forward contracts in place (2016: none).

At the present time, no cover is held against the value of overseas investments or intercompany loans with overseas entities as these are expected to be held for the long-term and over the next year dividend flows from these to Group are not expected to be significant.

Acquisition of Martract

On 7 December 2016, the Group acquired 100% of the issued share capital of Martract Limited for an initial consideration less net cash acquired of £3.6 million, plus maximum contingent deferred consideration of £0.6 million.

Intangible assets acquired with the business comprise £0.9 million in relation to non-contractual customer relationships and £2.8 million in relation to the manufacturing intellectual property.

The contingent consideration was initially recorded at a fair value of £0.6 million, which had been estimated based on future earnings, with a discount rate of 3%, assuming that £0.6 million would become payable.  Subsequently, the second-half performance and forecasts have been reviewed by the Directors and they consider it unlikely that the contingent deferred consideration will be paid and the provision has therefore been released.

A fair value adjustment related to an Employment Related Securities liability was made as a result of the vendors' shareholder restructuring immediately prior to completion. This liability was funded by the vendors of Martract Limited and was settled in January 2017.

Financing, cash flow and leverage

Operating cash inflow before movements in working capital and reorganisation and redundancy costs was £2.0 million higher at £2.5 million (2016: £0.5 million).  After a net investment in working capital of £1.5 million (2016: net reduction £4.6 million), cash generated from operations was £1.0 million (2016: £5.1 million). Our investment in working capital shows a significant increase during the year arising from the timing of large contract down payments, phasing of contract revenue and the adverse impact of certain major customers stretching payment terms at the end of 2017.

Cash flows from investment activities total £4.5 million and comprise predominantly the acquisition of Martract.  No item of capital expenditure is individually significant in the year, so the spend reflects general ongoing investment.  Where appropriate new machines are now acquired using dedicated equipment finance and these assets are then self financing through trading cash inflow.

The significant increase in adjusted EBITDA means the Net Debt to Adjusted EBITDA leverage ratio in respect of the revolving credit facility (RCF) reduced to 3.1:1 at 30 September 2017 (2016: 3.7:1).  All facility covenants have been complied with throughout the period and the facility has now been extended to March 2019. 

Net debt was £11.1 million (2016: £6.6 million), the increase driven primarily by the acquisition of Martract and net investment in working capital.  The Group's £15 million RCF was fully drawn at the year-end.  Post year-end the Group completed a share placing, raising net proceeds of £4.8m.  Some £2.7m was repaid immediately as a tranche of debt, leaving the group £12.3m drawn at the time of writing. 

Earnings per share and dividends

Adjusted earnings per share increased to 6.3 pence (2016: (2.6) pence loss per share).  Basic loss per share was (7.9) pence (2016: 4.4 pence from continuing operations).

No dividends were paid in the year (2016: £0.8 million) and no dividends have been declared in respect of the year ended 30 September 2017 (2016: nil).  Distributable reserves in the parent company increased 20.1% to £22.1 million (2016: £18.4 million).

Statement of financial position

Goodwill and intangible assets (at cost) increased by £5.8 million to £37.9 million (2016: £32.1). £4.8m related to the acquisition of Martract, the remainder was investment in new product development and investment in IT systems.  Amortisation in the year was £2.4 million (2016: £2.2 million).  

Net current assets reduced to £9.1 million (2016: £10.0 million). This decrease is predominantly due to net investment in working capital in the year.

Non-current liabilities increased to £18.0 million (2016: £15.8 million) after borrowings increased to £15.6 million (2016: £12.4 million).

Net assets decreased by 2.9% to £33.8 million (2016: £34.8 million) and therefore net asset value per share decreased to 233 pence (2016: 241 pence). Had the post year-end fundraising taken place at the year-end date, the net asset value per share would have been 207 pence.

Joanna Allen

Chief Financial Officer

12 December 2017

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 52 week period ended 30 September 2017

	Notes	52 weeks ended 30 September 2017	52 weeks ended 1 October 2016
		£'000	£'000
Revenue	1	38,418	35,753
Cost of sales		(27,710)	(26,211)
Gross profit		10,708	9,542
Administration expenses		(9,611)	(9,923)
Operating profit/(loss) before M&A costs, amortisation and exceptional charges and credits	1	1,097	(381)
Separately disclosed items of administrative expenses:
Amortisation and M&A related exceptional items	3	(1,968)	1,123
Other exceptional charges and credits	4	(703)	(798)
Operating loss		(1,574)	(56)
Finance income		4	32
Finance costs		(343)	(335)
Loss before taxation	2	(1,913)	(359)
Taxation	6	766	1,002
(Loss)/profit for the period from continuing operations		(1,147)	643
Discontinued operations
Loss for the year from discontinued operations	5	-	(1,331)
Loss for the period attributable to owners of the parent		(1,147)	(688)
Other comprehensive income Items that may be reclassified subsequently to profit or loss: Currency translation differences on translation of foreign operations		(4)	(426)
Total comprehensive income for the period attributable to the owners of the parent		(1,151)	(1,114)
Basic earnings per share
From continuing operation	7	(7.9)p	4.4p
From discontinued operations	7	-	(9.2)p
From (loss)/profit for the period		(7.9)p	(4.8)p
Diluted earnings per share
From continuing operation	7	(7.9)p	4.4p
From discontinued operations	7	-	(9.2)p
From (loss)/profit for the period		(7.9)p	(4.8)p

CONSOLIDATED BALANCE SHEET

As at 30 September 2017

	Notes	30 September 2017	1 October 2016
		£'000	£'000
Non-current assets
Goodwill	9	16,062	15,020
Intangible assets	10	13,658	11,329
Property, plant and equipment		12,583	13,765
Deferred tax asset	16	343	544
		42,646	40,658
Current assets
Inventories		4,986	5,210
Trade and other receivables	12	11,339	11,279
Cash and cash equivalents		4,791	6,073
		21,116	22,562
Total assets		63,762	63,220
Current liabilities
Trade and other payables	13	(11,748)	(12,069)
Borrowings	14	(219)	(242)
Current tax liabilities		(23)	(258)
		(11,990)	(12,569)
Non-current liabilities
Other payables	13	(238)	(1,398)
Borrowings	14	(15,642)	(12,411)
Deferred tax liabilities	16	(2,089)	(2,027)
		(17,969)	(15,836)
Total liabilities		(29,959)	(28,405)
Net assets		33,803	34,815
Equity
Share capital		725	724
Share premium account		21,637	21,620
Translation reserve		(405)	(401)
Retained earnings		11,846	12,872
Total equity		33,803	34,815

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 52 week period ended 30 September 2017

	Notes	Share capital	Share premium account	Translation reserve	Profit and loss account	Total equity
		£'000	£'000	£'000	£'000	£'000
Balance at 3 October 2015		721	21,539	25	14,056	36,341
Dividends	8	-	-	-	(810)	(810)
Share based payments		-	-	-	314	314
Shares issued		3	81	-	-	84
Transactions with owners		3	81	-	(496)	(412)
Loss for the period		-	-	-	(688)	(688)
Other comprehensive income: Exchange differences on translating foreign operations		-	-	(426)	-	(426)
Total comprehensive income		-	-	(426)	(688)	(1,114)
Balance at 1 October 2016		724	21,620	(401)	12,872	34,815
Dividends	8	-	-	-	-	-
Share based payments		-	-	-	121	121
Shares issued		1	17	-	-	18
Transactions with owners		1	17	-	121	139
Loss for the period		-	-	-	(1,147)	(1,147)
Other comprehensive income: Exchange differences on translating foreign operations		-	-	(4)	-	(4)
Total comprehensive income		-	-	(4)	(1,147)	(1,151)
Balance at 30 September 2017		725	21,637	(405)	11,846	33,803

 

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 52 week period ended 30 September 2017

	Notes	52 weeks ended 30 September 2017	52 weeks ended 1 October 2016
		£'000	£'000
Operating activities
Cash flows from operating activities	17	319	4,405
Finance costs paid		(324)	(228)
Income tax refund		216	504
Net cash inflow from operating activities		211	4,681
Investing activities
Proceeds from sale of fixed assets		21	84
Purchase of property, plant and equipment		(961)	(883)
Cash outflow on purchase of subsidiaries net of cash acquired	18	(3,597)	-
Cash outflow on payment of deferred consideration		-	(2,500)
Net cash used in investing activities		(4,537)	(3,299)
Financing activities
New borrowings		3,350	2,300
Repayment of borrowings		(324)	(342)
Dividends paid		-	(810)
Shares issued		18	84
Net cash from financing activities		3,044	1,232
Net (decrease) / increase in cash and cash equivalents		(1,282)	2,614
Cash and cash equivalents at beginning of period		6,073	3,459
Cash and cash equivalents at end of period		4,791	6,073

 

NOTES

Accounting policies

Basis of preparation

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 of the Companies Act 2006.  It has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) adopted for use in the European Union, including IFRIC interpretations issued by the International Accounting Standards Board, and in accordance with the AIM rules and is not therefore in full compliance with IFRS.  The principal accounting policies of the Group have remained unchanged from those set out in the Group's 2016 annual report.  The financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are carried at fair value.

The financial information for the period ended 30 September 2017 was approved by the Board on 11 December 2017 and has been extracted from the Group's financial statements upon which the auditor's opinion is unmodified and does not include a statement under section 498(2) or (3) of the Companies Act 2006.

The statutory accounts for the period ended 30 September 2017 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website www.pressuretechnologies.com. In due course, they will be delivered to the Registrar of Companies. The statutory accounts for the period ended 1 October 2016 have been delivered to the Registrar of Companies.

Going concern

The consolidated financial statements have been prepared on a going concern basis.

The group's existing bank borrowings have been extended to March 2019 and management have produced forecasts for all business units which have been reviewed by the Directors. These demonstrate the Group is forecast to generate profits and cash in 2017/2018 and beyond and that the Group has sufficient cash reserves and bank facilities to enable the Group to meet its obligations as they fall due for a period of at least 12 months from when these financial statements have been signed. Management have modelled the financial covenants in the forecasts and no breach is expected. 

As such, the Directors are satisfied that the Company and Group have adequate resources to continue to operate for the foreseeable future. For this reason they continue to adopt the going concern basis for preparing the financial statements.

1.   Segment analysis

 

The financial information by segment detailed below is frequently reviewed by the Chief Executive who has been identified as the Chief Operating Decision Maker (CODM). The manufacturing and Alternative Energy divisions are distinct due to the nature of the underlying businesses and as such are grouped on that basis.

For the 52 week period ended 30 September 2017

	Cylinders	Precision Machined Components	Engineered Products	Manufacturing sub total	Alternative Energy	Central costs	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
- total	8,403	10,703	3,861	22,967	15,800		38,767
- revenue from other segments	-	(340)	(9)	(349)	-	-	(349)
Revenue from external customers	8,403	10,363	3,852	22,618	15,800	-	38,418
Gross Profit	3,408	3,591	1,002	8,001	2,731	(24)	10,708
Operating profit / (loss) before M&A costs, amortisation and exceptional charges and credits	1,062	1,840	(471)	2,431	3	(1,337)	1,097
Amortisation and M&A related exceptional items	-	(1,691)	-	(1,691)	(708)	431	(1,968)
Other exceptional charges	(34)	(57)	(36)	(127)	(413)	(163)	(703)
Operating profit / (loss)	1,028	92	(507)	613	(1,118)	(1,069)	(1,574)
Net finance (costs) / income	(9)	(6)	-	(15)	4	(328)	(339)
Profit / (loss) before tax	1,019	86	(507)	598	(1,114)	(1,397)	(1,913)
Segmental net assets *	6,271	24,370	2,526	33,167	14,736	(14,100)	33,803
Other segment information:
Capital expenditure	(37)	166	23	152	72	68	292
Depreciation	403	700	108	1,211	105	122	1,438
Amortisation	-	1,691	-	1,691	708	8	2,407

* Segmental net assets comprise the net assets of each division adjusted to reflect the elimination of the cost of investment in subsidiaries and the provision of financing loans provided by Pressure Technologies plc.

 

 

 

 

For the 52 week period ended 1 October 2016

	Cylinders	Precision Machined Components	Engineered Products	Manufacturing sub total	Alternative Energy	Central costs	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
- total	9,538	11,319	4,163	25,020	11,335	-	36,355
- revenue from other segments	-	(576)	(23)	(599)	(3)	-	(602)
Revenue from external customers	9,538	10,743	4,140	24,421	11,332	-	35,753
Gross Profit	3,226	3,350	994	7,570	1,972	-	9,542
Operating profit / (loss) before M&A costs, amortisation and exceptional charges and credits	1,053	1,398	(291)	2,160	(1,060)	(1,481)	(381)
Amortisation and M&A related exceptional items	-	(1,462)	-	(1,462)	(703)	3,288	1,123
Other exceptional charges	(84)	(359)	(333)	(776)	(22)	-	(798)
Operating profit / (loss)	969	(423)	(624)	(78)	(1,785)	1,807	(56)
Net finance (costs) / income	-	(11)	-	(11)	29	(321)	(303)
Profit / (loss) before tax	969	(434)	(624)	(89)	(1,756)	1,486	(359)
Segmental net assets *	7,132	22,153	2,868	32,153	13,876	(11,214)	34,815
Other segment information:
Capital expenditure	419	268	140	827	92	42	961
Depreciation	330	822	128	1,280	95	102	1,477
Amortisation	-	1,462	-	1,462	703	1	2,166

* Segmental net assets comprise the net assets of each division adjusted to reflect the elimination of the cost of investment in subsidiaries and the provision of financing loans provided by Pressure Technologies plc.

The following table provides an analysis of the Group's revenue by geographical destination.

Revenue	2017	2016
	£'000	£'000
United Kingdom	15,451	17,235
Europe	7,050	7,817
Rest of the World	15,917	10,701
	38,418	35,753

The Group's largest customer contributed 12% to the Group's revenue (2016: 7%) and is reported within the Alternative Energy segment. No other customer contributed more than 10% in the period to 30 September 2017 (2015: nil).

The following table provides an analysis of the Group's revenue by market.

Revenue	2017	2016
	£'000	£'000
Oil and gas	13,775	15,527
Defence	6,471	6,469
Industrial gases	2,347	2,372
Alternative energy	15,825	11,385
	38,418	35,753

The above table is provided for the benefit of shareholders.  It is not provided to the PT board or the CODM on a regular monthly basis and consequently does not form part of the divisional segmental analysis.

Revenue	2017	2016
	£'000	£'000
Sale of goods	34,420	32,591
Rendering of services	3,998	3,162
Total sales - continuing operations	38,418	35,753
Discontinued operations
Sale of goods	-	1,230
Total sales	38,418	36,983

The following table provides an analysis of the carrying amount of non-current assets and additions to property, plant and equipment. 

		2017				2016
		United Kingdom	Rest of the World	Total		United Kingdom	Rest of the World	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Non-current assets		42,594	52	42,646		40,581	77	40,658
Additions to property, plant and equipment		240	52	292		859	102	961

 

 

 

 

2. Profit before taxation

Profit before taxation is stated after charging / (crediting):

	2017	2016
	£'000	£'000
Depreciation of property, plant and equipment - owned assets	1,382	1,387
Depreciation of property, plant and equipment - assets under finance lease and hire purchase agreements	56	90
Loss on disposal of fixed assets	21	9
Amortisation of intangible assets acquired on business combinations	2,407	2,166
Amortisation of grants receivable	(94)	(99)
Staff costs - excluding share based payments	11,058	12,911
Cost of inventories recognised as an expense	21,418	20,538
Operating lease rentals:
- Land and buildings	353	323
- Machinery and equipment	89	90
Foreign currency loss/(gain)	37	(711)
Share based payments	121	311
Research and development	-	209

3.   Amortisation and M&A related exceptional items

	2017	2016
	£'000	£'000
Amortisation of intangible assets	(2,407)	(2,166)
M&A costs	(158)	-
Deferred consideration write back	597	3,766
Foreign currency loss  on revaluation of deferred consideration liability	-	(477)
	(1,968)	1,123

The deferred consideration write back in this period relates to the deferred consideration arising from the acquisition of Martract Limited. The deferred consideration write back in the prior period related to the deferred consideration arising from the acquisition of the Greenlane Group of Companies. The payment of these considerations are contingent on the future results of the acquired entities. The Directors reviewed forecasts in relation to Martract and Greenlane and considered that it was unlikely that the considerations would be paid, and as such they were released. Given the magnitude of the amounts released and the fact that they are non-trading, the Directors considered it appropriate to disclose them as exceptional items.

The revaluation of the deferred consideration liability related to the exchange differences calculated on the deferred consideration arising from the acquisition of The Greenlane Group, which was denominated in New Zealand Dollars, before it was written back. Given the large balance and therefore the effect on the results of the Group, the Directors considered it appropriate to disclose this foreign exchange movement as an exceptional item.

 

4. Other exceptional (charges) / credits

	2017	2016
	£'000	£'000
Reorganisation and redundancy	(710)	(732)
Costs in relation to HSE investigation	(21)	(66)
Write back of KGTM loan previously provided for	28	-
	(703)	(798)

 

The reorganisation costs relate to costs of restructuring across the Group, the Divisional split is given in Note 1. They are recognised in accordance with IAS 19.

 

Costs in relation to the HSE investigation are costs borne by the Group as a direct result of the accident at Chesterfield Special Cylinders which are not recoverable through insurance. Given the non-trading nature of these costs, the Directors consider it appropriate to disclose this as an exceptional item. Further details on the HSE investigation can be seen in note 19.

The write back of Kelley GTM loan previously provided for, relates to a receipt from KGTM for a loan amount that was previously provided for (reversal of the provision).

 

5.   Results of discontinued operation

	2017	2016
	£'000	£'000
Revenue	-	1,267
Expenses	-	(1,865)
	_______	_______
Operating Profit pre-exceptional costs	-	(598)
Exceptional costs:
Reorganisation and redundancy	-	(278)
Impairment of assets on closure	-	(455)
	_______	_______
Loss before taxation	-	(1,331)
Taxation	-	-
	_______	_______
Loss for the year	-	(1,331)

 

Due to the oil and gas market conditions that continued into the second half of the prior accounting period, as part of the group's restructuring, the US operation of the engineered products division was closed during the prior year. The manufacturing facilities were wound down and fully closed in early September 2016.

	2017	2016
	£'000	£'000
Cash flows from discontinued operations
Net cash used in operating activities	-	(679)
Net cash from investing activities	-	27
Net cash from financing activities	-	783
	_______	_______
Net cash flows for the year	-	131

 

6. Taxation

	2017	2016
	£'000	£'000
Current tax (credit)/expense
Current tax	-	-
Over provision in respect of prior years	(405)	(163)
Foreign tax	49	-
	(356)	(163)
Deferred tax (credit)/expense
Origination and reversal of temporary differences	(534)	(839)
Over provision in respect of prior years	124	-
	(410)	(839)
Total taxation credit	(766)	(1,002)

 

Corporation tax is calculated at 19.5% (2016: 20%) of the estimated assessable profit for the period. Deferred tax is calculated at the rate applicable when the temporary differences unwind.

 

7. Earnings per ordinary share

Basic and diluted earnings per share have been calculated based on the net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the period.

The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The adjusted earnings per share is also calculated based on the basic weighted average number of shares.

The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.

Additional shares were issued post year end as part of a share placing, see note 21.

For the 52 week period ended 30 September 2017

	Continuing £'000	Discontinued £'000	Total £'000
Loss after tax	(1,147)	-	(1,147)
			No.
Weighted average number of shares - basic			14,485,099
Dilutive effect of share options			75
Weighted average number of shares - diluted			14,485,174
Basic loss per share	(7.9)	-	(7.9)
Diluted loss per share	(7.9)	-	(7.9)

 

The Group adjusted earnings per share is calculated as follows:

Loss after tax	(1,147)	-	(1,147)
Amortisation and M&A related exceptional items (note 3)	1,968	-	1,968
Other exceptional charges and credits (note 4)	703	-	703
Theoretical tax effect of above adjustments	(606)	-	(606)
Adjusted earnings	918	-	918
Adjusted earnings per share	6.3	-	6.3

For the 52 week period ended 1 October 2016

	Continuing £'000	Discontinued £'000	Total £'000
Profit / (loss) after tax	643	(1,331)	(688)
			No.
Weighted average number of shares - basic			14,449,195
Dilutive effect of share options			1,983
Weighted average number of shares - diluted			14,451,178
Basic earnings / (loss) per share	4.4p	(9.2)p	(4.8)p
Diluted earnings / (loss) per share	4.4p	(9.2)p	(4.8)p

 

 

The Group adjusted loss per share is calculated as follows:

Profit / (loss) after tax	643	(1,331)	(688)
Amortisation and M&A related exceptional items (note 3)	(1,123)	-	(1,123)
Other exceptional charges and credits (note 4)	798	278	1,076
Impairment of assets on closure	-	455	455
Theoretical tax effect of above adjustments	(688)	(56)	(744)
Adjusted loss	(370)	(654)	(1,024)
Adjusted loss per share	(2.6)p	(4.5)p	(7.1)p

 

8. Dividends

 

The following dividend payments have been made on the ordinary 5p shares in issue:

 

	Rate	Date	Shares in issue	2017	2016
				£'000	£'000
Final 2014/15	5.6p	18 March 2016	14,471,481	-	810
				-	810

 

No dividends have been declared in respect of the year ended 30 September 2017 or 1 October 2016.

9. Goodwill

	Total £'000
Cost and gross carrying amount
At 3 October 2015	15,020
Acquired through business combinations	-
At 1 October 2016	15,020
Acquired through business combinations (note 18)	1,042
At 30 September 2017	16,062

	Date of acquisition	Original cost £'000
Precision Machined components
Al-Met Limited	February 2010	272
Roota Engineering Limited	March 2014	5,117
The Quadscot Group	October 2014	3,079
Martract Limited	December 2016	1,042
Engineered products
Hydratron Limited	October 2010	1,692
Alternative Energy
The Greenlane Group	October 2014	4,860
At 30 September 2017		16,062

Goodwill arising on consolidation represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. The Group has Goodwill in relation to 6 acquisitions shown above.

The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired.

 

 

 

10. Intangible assets

	Intellectual Property	IT systems & Software Licenses	Development expenditure	Technology	Non contractual customer relationships	Total
Cost	£'000	£'000	£'000	£'000	£'000	£'000
At 3 October 2015	-	-	-	5,316	11,702	17,018
Additions	-	44	-	-	-	44
At 1 October 2016	-	44	-	5,316	11,702	17,062
Additions	-	432	564	-	-	996
Acquired through business combination (note 18)	2,796	-	-	-	944	3,740
At 30 September 2017	2,796	476	564	5,316	12,646	21,798
Amortisation
At 3 October 2015	-	-	-	720	2,847	3,567
Charge for the period	-	1	-	703	1,462	2,166
At 1 October 2016	-	1	-	1,423	4,309	5,733
Charge for the period	155	9	-	708	1,535	2,407
At 30 September 2017	155	10	-	2,131	5,844	8,140
Net book value
At 30 September 2017	2,641	466	564	3,185	6,802	13,658
At 1 October 2016	-	43	-	3,893	7,393	11,329

 

Remaining useful economic life at 30 September 2017

14 years

5 years

10 years

5 years

6 years

 

11. Investments in associates

The investment in Kelley GTM, LLC was fully written down in the period ended 3 October 2015.

Had this not been the case the group's share of the results of its principal associates and its aggregated assets (including goodwill) and liabilities, would be as follows:

	Country of incorporation	Assets	Liabilities	revenue	Loss	Interest held
		£'000	£'000	£'000	£'000	%
At 1 October 2016
Kelley GTM, LLC.	USA	473	(6,202)	918	(195)	40
At 30 September 2017
Kelley GTM, LLC.	USA	1,004	(7,189)	908	(652)	40

KGTM has a year-end date of 31 December. The period for which the results of KGTM have been shown in the table above is from 2 October 2016 to 30 September 2017. The group's share of the results of KGTM are not included in the group's financial statements as the investment and loans made to KGTM are fully written down and there is no legal or constructive obligation to recognise any further losses and no further payments have been made on behalf of the associate.

The total losses recognised against the investment and other receivables from KGTM for the period were £Nil (2016: nil) leaving unrecognised losses of £652,000 (2016:£195,000).

12. Trade and other receivables

	2017	2016
	£'000	£'000
Current
Trade receivables	8,820	7,536
Amounts due from customers for construction contract work	1,256	1,827
Other receivables	216	602
Prepayments and accrued income	1,047	1,314
	11,339	11,279

The average credit period taken on the sale of goods and services was 61 days (2016: 47 days) in respect of the Group. One debtor individually accounted for over 10% of trade receivables and represented 14% of the total balance. In 2016, one debtor accounted for over 10% of trade receivables and represented 26% of the total balance.

Ageing of past due but not impaired receivables:

	2017	2016
	£'000	£'000
Days past due:
0 - 30 days	1,702	1,310
31 - 60 days	310	242
61 - 90 days	360	220
91 - 120 days	50	65
121+ days	84	389
Total	2,506	2,226

The Group's doubtful debt provision is not a significant balance.

13. Trade and other payables

	2017	2016
	£'000	£'000
Amounts due within 12 months
Trade payables	5,030	6,903
Progress billings on construction contracts in excess of work completed	1,368	931
Other tax and social security	757	301
Accruals, deferred income and other payables	4,593	3,934
Total due within 12 months	11,748	12,069
Amounts due after 12 months
Accruals, deferred income and other payables	238	1,398
Total due after 12 months	238	1,398

Deferred income due after 12 months includes grant income received and customer prepayments for contracts in delivery in a number of years. There are no unfulfilled conditions or other contingencies attached to these grants.

The warranty provision at 30 September 2017 is £491,000 (2016: £306,000).

14. Borrowings

	2017 £'000	2016 £'000
Non-current
Bank borrowings	15,000	12,300
Finance lease liabilities	642	111
	15,642	12,411
Current
Finance lease liabilities	219	242
	219	242
Total borrowings	15,861	12,653

 

At the balance sheet date, the above bank borrowings were due for repayment on 30 September 2018, being exactly 12 months from the balance sheet date. The group's next accounting period ends on 29 September 2018. Accordingly the directors have concluded that it is appropriate to present the loan as due for repayment after one year.

The borrowing facility repayment date has since been extended to March 2019. The bank loan bears average coupons of 2% above LIBOR annually.

Total borrowings include secured liabilities of £15 million. Bank borrowings are secured on the property, plant and equipment of the group. Obligations under finance leases are secured on the plant & machinery assets to which they relate.

The carrying amounts of the group's borrowings are all denominated in GBP.

The maturity profile of long-term loans is as follows:

	2017	2016
	£'000	£'000
Due within one year
Finance lease liabilities	219	242
Due for settlement after one year
Bank borrowings	15,000	12,300
Finance lease liabilities	642	111

The group has the following undrawn borrowing facilities:

	2017	2016
	£'000	£'000
Expiring beyond one year	-	2,700

The facility also includes an accordion feature option allowing for an additional facility for £10m subject to certain conditions set out in the agreement.

15. Construction contracts

Construction contracts are accounted for in accordance with IAS 11, 'Construction Contracts' and IAS18, 'Revenue'. The position on individual contracts is held as 'Amounts due from customers for contract work' within trade and other receivables or as 'Progress billings on construction contracts in excess of work completed' within trade and other payables as applicable.

	2017 £'000	2016 £'000
Costs incurred and profit recognised to date	19,862	16,083
Less: Progress billings	(19,974)	(15,187)
Net balance sheet position for ongoing contracts	(112)	896

16. Deferred tax

The following are the major deferred tax assets / (liabilities) recognised by the Group and movements thereon during the current and prior reporting period.

	Accelerated tax depreciation	Intangible assets	Short term temporary differences	Share option costs	Unused losses	Total
	£'000	£'000	£'000	£'000	£'000	£'000
At 3 October 2015	(758)	(1,770)	111	95	-	(2,322)
Credit / (charge)  to income	40	514	(16)	(29)	330	839
At 1 October 2016	(718)	(1,256)	95	66	330	(1,483)
Prior year adjustment	(3)	-	(13)	56	(40)	-
Credit / (charge)  to income	291	325	68	16	(290)	410
Acquired through business combinations	-	(673)	-	-	-	(673)
At 30 September 2017	(430)	(1,604)	150	138	-	(1,746)

The net deferred tax balance has been analysed as follows in the consolidated balance sheet:

 

	2017	2016
	£'000	£'000
Non-current asset Deferred tax asset	343	544
Non-current liabilities Deferred tax liabilities	(2,089)	(2,027)
	(1,746)	(1,483)

 

Deferred tax is expected to be recoverable against future profits generated by the Group.

 

17. Consolidated cash flow statement

	2017	2016
	£'000	£'000
Loss after tax	(1,147)	(688)
Adjustments for:
Finance costs - net	339	303
Depreciation of property, plant and equipment	1,438	1,477
Amortisation of intangible assets	2,407	2,166
Share option costs	121	314
Income tax credit	(766)	(1,002)
Loss on derivative financial instruments	-	26
Loss on disposal of property, plant and equipment	21	8
Exceptional deferred consideration released and revaluation	(597)	(3,289)
Exceptional impairment of assets	11	464
Changes in working capital:
Decrease in inventories	243	1,749
Decrease in trade and other receivables	413	1,948
(Decrease)/Increase in trade and other payables	(2,164)	929
Cash flows from operating activities	319	4,405

18. Business combinations

On 7 December 2016, the Group acquired 100% of the issued share capital of Martract Limited for an initial consideration of £3,997,000, plus maximum deferred consideration of £600,000.

In calculating goodwill below, the contingent consideration is held at fair value of £583,000. This has been estimated based on future earnings. The fair value estimate is based on a discount rate of 3% and assumes that £583,000 of deferred consideration is payable.

Subsequently the post acquisition performance and forecasts have been reviewed by the Directors and they consider that it is unlikely that the deferred consideration will be paid, and as such it has been released (note 3).

Martract has unique capabilities in spherical grinding that ensures the perfect sphericality of new and refurbished  ball valves, such that the valve will seal in any position, through the opening and closing process. It is based in Barton-upon-Humber. The transaction has been accounted for by the acquisition method of accounting.

The table below summarises the consideration paid for Martract and the fair value of the assets and liabilities acquired.

	Book value	Intangible assets recognised on acquisition	Fair Value Adj	Fair Value
	£'000	£'000	£'000	£'000
Recognised amounts of identifiable assets acquired and liabilities assumed:
Property plant and equipment	16	-	-	16
Intangible assets	-	3,740	-	3,740
Inventories	19	-	-	19
Trade and other receivables	162	-	363	525
Cash and cash equivalents	400	-	-	400
Trade and other payables	(101)	-	(488)	(589)
Current tax liabilities	(25)	-	125	100
Deferred tax liabilities	-	(673)	-	(673)
	_______	_______	_______	________
	471	3,067	-	3,538
	_______	_______	_______	________
Goodwill				1,042
Total consideration				4,580
				_______
Satisfied by:
Initial Cash				3,634
Retention cash				363
Deferred cash consideration				583
				_______
				4,580
				_______
Net cash outflow arising on acquisition
Initial & retention cash consideration				3,997
Cash and cash equivalents acquired				(400)
				_______
Initial consideration less net cash acquired				3,597
				_______

The intangible assets acquired with the business comprise £944,000 in relation to non-contractual customer relationships and £2,796,000 in relation to the manufacturing intellectual property.

The fair value adjustment relates to an Employment Related Securities liability that arose as a result of the vendors shareholder restructuring immediately prior to completion. This liability was funded by the vendors of Martract Limited.

The goodwill of £1,042,000 arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of Martract with the rest of the PMC division. None of the goodwill recognised is expected to be deductible for income tax purposes.

Martract contributed £671,000 revenue and £236,000 to the Group's profit after tax for the period between the date of acquisition and the balance sheet date. The effect of the inclusion of the acquisition had it been completed on the first day of the financial year is considered to be immaterial upon the Group's revenue and profit after tax.

 

19. Contingent liabilities

Following the fatal accident at Chesterfield Special Cylinders ("CSC") in June 2015, other than the submission by CSC of written responses to questions from the Health and Safety Executive (HSE), there have been no further developments since the interim statement on 13 June 2017 and the HSE investigation into this accident remains ongoing. On 1st February 2016 the Sentencing Council's new "Health and Safety Offences, Corporate Manslaughter and Food Safety and Hygiene Offences Definitive Guideline" (2016) came into force.

The guidelines set a range of fines dependent on the levels of harm and culpability. These levels are assessed by the Judge when sentencing and not at the time of charges being brought. We continue to cooperate fully with the HSE. Until the HSE investigation is complete CSC's management and legal adviser are not in a position to assess what charges may be brought. As a result of this and the nature of the sentencing guidelines it is not possible to determine with any degree of certainty what, if any, financial penalties may be levied on CSC or any other group company as a result of this investigation. At such time as the quantum and likelihood of any penalty is able to be reliably determined further disclosure or provision will be made in accordance with IAS37 "Provisions, Contingent Liabilities and Contingent Assets"

20. Related party transactions

Key management personnel are considered to be the Executive and Non-Executive Directors of the Group. Details of their remuneration is set out below:

	2017	2016
	£'000	£'000
Short-term employee benefits (including Employers NI)	622	580
Post-employment benefits	41	41
Share based payments	63	65
Total remuneration	726	686

During the period ended 30 September 2017, Pressure Technologies spent £64,779 with Vias Digital Limited of which one of the Non-Executive Directors, Alan Wilson, is a connected person.

During the period ended 3 October 2015, Pressure Technologies purchased 5 GTMs from Kelley GTM, LLC, in which the Group owns a 40% stake. These GTMs were purchased at a cost of £391,000 with the intention of entering them into a lease fleet of GTMs in operation, in which they remain at the period end. The GTMs owned by the Pressure Technologies Group are disclosed within property, plant and equipment at their carrying value. The transaction was completed on an arm's length basis.

The Group also has loans outstanding from Kelley GTM, LLC of $3,500,000. The Directors consider that the recoverability of these loans is not certain and therefore have made full provision against the full value of the loans in the period ended 3 October 2015.

21. Post Balance Sheet event

On 6th November 2017, a total of 4,100,000 new Ordinary Shares of 5 pence each in the Company were placed at a price of 122 pence, raising proceeds of £5,002,000 before expenses. Net proceeds of the placing were £4,764,000.

22. Notice of Annual General Meeting

The Annual General Meeting of the Company will be held at Chesterfield Special Cylinders, Meadowhall Road, Sheffield, South Yorkshire, S9 1BT on Tuesday 13th February 2018 at 11am.

 

 

 

END

 

 

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