Final Results

RNS Number : 0386K

Pressure Technologies PLC

11 December 2018

 

11 December 2018

Pressure Technologies plc

("Pressure Technologies" or the "Group")

2018 Full-Year Results

Pressure Technologies (AIM: PRES), the specialist engineering group, announces its full-year results for the year ended 29 September 2018.  

Chris Walters, Chief Executive of Pressure Technologies, said:

"The Group is well placed to take advantage of improving market conditions and realise the benefits of investment in people, new equipment and supporting processes. Beyond the organic growth seen in our rising order book, increasing our capability, scale and reach through acquisitions remains a strategic focus."

Financial

●    Revenue* of £32.2 million (2017: £34.6 million)

●    Adjusted operating profit** at £0.5 million (2017: £1.6 million)

●    Reported loss before tax of £(3.1) million (2017: £(1.4) million )

●    Adjusted earnings per share* of 0.7p (2017:  10.0p)

●    Reported basic loss per share* of (13.9)p (2017: (4.0)p)

●    Adjusted net operating cash inflow*** £0.5 million (2017: £0.9 million)

●    Closing net debt at £6.7 million (2017: £11.1 million )

* continuing operations

** Operating profit excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits.

***before cash outflow for exceptional costs

Operational

●     Manufacturing revenue up 13% year on year with second-half 32% up on the first-half as the businesses experience an uplift in activity from core markets

●     Precision Machined Components Division's closing order book up 54% on 2017, with highest intake levels in October 2018, since April 2014

●     Completed sale of Hydratron, the Group's Engineered Products Division for £1.1 million initial consideration

●     Post year-end conditional sale of the Alternative Energy Division for £11.1 million to a Canadian TSX Venture Exchange  listed company

For further information, please contact:

Pressure Technologies plc Chris Walters, Chief Executive Joanna Allen, Chief Financial Officer 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.

Precision Machined Components - www.pt-pmc.com

●     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 

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 

CHAIRMAN'S STATEMENT

Overview

It's fair to say that the much anticipated up-turn in the oil and gas industry took slightly longer to gain momentum than we had anticipated towards the end of last year.  However, it's pleasing to report that the past few months have seen improved order intake trends and order book levels, supported by markedly higher bid activity throughout the Group.

As previously announced, John Hayward, CEO, stepped down from his role and Phil Cammerman, Non-Executive Director, retired during the year.  Chris Walters was appointed as Chief Executive in September, bringing a wealth of experience in building successful global businesses and we look forward to him making a significant contribution in leading the Group.

Further substantiation of Chesterfield Special Cylinders' (CSC) market leadership was reinforced during the year when they became the only company from their peer group that managed to deliver unique, highly specialised cylinders for the Dreadnought Class of nuclear-powered submarines.  The level of technical and manufacturing skills involved in such an undertaking is remarkable and it can only be offered from CSC - a company of master craftsmen!

During the past year, we have reviewed our portfolio of companies, with the view to refocusing our efforts on where we can achieve market leadership and deliver more predictable growth in sales and profits.  In June, we announced the sale of Hydratron, which formed the Group's Engineered Products Division, for an initial cash consideration of £1.1 million, with an additional consideration of up to £2.25 million, which may become payable in cash, contingent on the company's future trading performance.

In the second-half of the year, focus turned to reviewing the strategic options for the Alternative Energy Division (AE) to realise the full potential of the Greenlane Biogas business in the expanding market for renewable natural gas (RNG), acknowledging that the nature of RNG development projects and plant installation contracts are no longer strategically compatible with the Group's focus on highly specialised manufacturing in oil and gas and defence markets.

We conducted a comprehensive review of divestment options, including an outright sale, a merger or a stock market listing.  After generating positive interest in the business, the Board opted to proceed with a listing on the Canadian TSX Venture Exchange (TSX-V) as the most attractive approach, primarily due to deal deliverability, timing and value realisation.  This option also allows the Group to retain a minority stake in the listed entity and benefit from the anticipated upside potential.  I am pleased to report that on 10 December 2018, the Group announced it had commenced a process to spin out Greenlane and list it on the TSX-V, which will be accomplished by selling it to Creation Capital. We will remain a supportive minority shareholder and anticipate retaining our holding for the medium term.  We anticipate this will conclude during the first quarter of 2019.

Results

Group revenue was £32.2m in the year, a 7% decline from last year, mostly as a result of lower turnover in AE. The turnover from our manufacturing divisions was up by 13%.  Operating profits were modest at £0.5 million, however, returning a positive result on such low sales is clear evidence of the efforts taken in the past few years to align costs and improve operating efficiency.

The manufacturing divisions achieved returns on sales of between 11% and 13%, which is commendable in what were tough trading conditions in oil and gas.  The AE Division recorded a small overall operating loss in the year, primarily due to low order intake in the first-half, but it was profitable throughout the second-half following its restructure.

The modest operating cash flow of £0.3 million reflects the phasing of large contract revenues around the year-end.

The Board has again resolved that no dividend shall be paid to shareholders this year as investment in the core manufacturing businesses remains the priority for capitalising on the improving markets conditions.

Outlook

Clearly, the opportunities for growth that we anticipated at the beginning of last year didn't materialise until later in the year.  However, recent trading performance, order intake and general bidding activity indicates that we're seeing a period of increased market activity, particularly for oil and gas, so the Board expects a much better trading performance from the Group this year.

This increase in activity has been fuelled by greater confidence in the global oil and gas market, where most international oil companies have recently reported strong quarterly profits, which has in turn spurred a flurry of investment in capital projects.   Time will tell whether these promising signs gather further momentum, in an environment where the USA Government is actively lobbying some of the world's largest crude oil producers to increase production in order to push prices down, thereby stimulating economic growth.  This is an economic model that is more suited to heavily industrialised nations, but not for those who are reliant on oil revenues to fund domestic spending.  The tensions are obvious.

When reflecting upon factors within the Board's control, the past year could be considered transformational, with the strategic divestment of two Divisions.  Once the Greenlane Biogas deal has concluded, the Group will be in a stronger position to realise the efficiency benefits gained from recent restructuring and performance improvement measures, thereby capitalising on improving market conditions.

It is worth highlighting that the trading outlook for next year is much more encouraging, with year-end order books in our core manufacturing Divisions between 36-54% higher than at the same time last year.

The Board anticipates that funds generated from the portfolio rationalisation will provide the Group with a strengthened balance sheet, so we are actively looking at how we may be able to leverage that to accelerate growth in target markets.

Alan Wilson

Chairman

10 December 2018

CHIEF EXECUTIVE'S STATEMENT 2018

This is a very exciting time for the Group and I am delighted to join the team.  During my first few weeks, I have met proud and committed colleagues in a business with unrivalled heritage and a leading reputation for craftsmanship and quality.

The past year was evidently an unpredictable and challenging one for the Group, but many positive steps have been taken to prepare the business for steadily improving conditions in our core markets. As momentum builds gradually in the oil and gas industry and our presence grows further in global defence markets, we have significantly strengthened our order book and have a clearer view of our customers' project pipeline today than at any point in the past three years.

Operational improvements and continued investment in our people, production capability and Group support underpin our confidence and our ability to realise the tremendous potential in our target markets.  I am excited to be leading the Group and our valued colleagues into 2019 and beyond, building on our strong foundation and setting a clear vision for innovation, development and growth.

Performance

Overall Group revenue for the year was £32.2 million (2017: £34.6 million), down 7% as a result of fewer renewable energy projects.  Revenue in our core Manufacturing Divisions increased by 13% to £21.2 million (2107: £18.8 million).  Adjusted operating profit was £0.5 million (2017: £1.6 million), down as a result of operating losses in our Alternative Energy Division, mix-driven lower gross margins in manufacturing and investment in people and operating structure.

Oil and gas sector

Revenue £ million	2018	2017	2016	2015
Group	12.5	10.6	11.9	25.1
PMC	11.0*	9.8	10.2	18.8
Cylinders	1.5	0.8	1.7	6.3

*casting anomaly due to rounding

Revenue from oil and gas sector customers increased 18% to £12.5 million (2017: £10.6 million) as activity in this sector made further gains over the low point in 2017, driven by increased order volumes in our Precision Machined Components Division (PMC) and the delivery of drillship air pressure vessels in our Cylinders Division.  The recovery in oil and gas exploration and production activity has been unpredictable for the Group and our customers.  We experienced a very slow third-quarter as our customers focused internally on planning and resourcing for increased project execution and procurement activity, generating a tendering surge in the fourth-quarter and pressure on lead times to meet project deadlines.

Throughout the downturn, gross margins in our PMC Division, which focuses primarily on this sector have remained above 30% and were 33% in 2018 (2017: 35%), with the cost impact of higher base material content and carbide coatings offsetting efficiency improvements from new equipment and processes.  Margins in the year were also affected by new product development work with new and existing customers.  These developments have extended our product range and delivered new revenue streams with strong margins.  A total of 15 new customers contributed 8% of total PMC revenue in the year.

Defence sector

Revenue £ million	2018	2017	2016	2015
Group	6.6	6.4	6.5	7.5
PMC	-	-	-	-
Cylinders	6.6	6.4	6.5	7.5

Defence sector revenue increased slightly to £6.6 million (2017: £6.4 million).  Delays to several key defence projects resulted in revenue being strongly weighted to the second-half of the year and slipping into 2019.  Standard and bespoke cylinders for the Dreadnought submarine programme contributed significantly alongside the Type 26 frigate project, which was secured in the first-half of the year.  Export naval revenue increased significantly, driven in particular by successful projects in South Korea.

Integrity management revenue increased 21% to £0.8 million (2017: £0.7 million) as activity for the UK naval support contract ramped up, having been delayed from the first-half of the year.

Driven by defence project revenues, overall gross margin in our Cylinders Division, which focuses primarily on this sector, remained strong at 35%, but fell below the 41% peak of 2017 due to a reduced volume of high-margin aerospace orders, product development work and increased direct labour costs.

Industrial gas sector

Revenue £ million	2018	2017	2016	2015
Group	2.0	1.7	1.3	0.6
PMC	0.3*	0.5	-	-
Cylinders	1.7	1.2	1.3	0.6

*casting anomaly due to rounding

Revenue increased 16% in this sector, driven by favourable phasing of cyclical refurbishment work for our largest customer off-setting the lower volume in this sector from PMC in the year.

Renewable energy sector

Revenue £ million	2018	2017	2016	2015
Group	11.1	15.9	11.3	14.0
AE	11.1	15.8	11.3	14.0
Cylinders	-	0.1	-	-

Alternative Energy Division (AE) projects dominated Group performance in this sector, with £11.1 million overall for the year (2017: £15.8 million) and a second-half revenue of £8.3 million, as work started on three projects secured earlier in the year.  

Overall revenue was adversely impacted in the UK by delays in the Renewable Heat Incentive amendments, complexity and client funding arrangement delays on contract awards in the Americas and the disruption to commercial activity experienced through Divisional restructuring throughout the prior year.  However, overall gross margin improved to 22% (2017: 17%) as a direct result of this restructuring.

People

The success of the Group comes from our people.  Our performance and our reputation are achieved through their skills, experience and relationships, through their hard work and from the way they collaborate with colleagues and with our customers.

I am personally committed to ensure all colleagues have a safe place to work, where we also positively support their health and well-being.  We have further strengthened HSE management across the Group with new roles in our operational sites, supporting more focused workplace risk assessment and performance reporting.  A new working group is evaluating improvements to the way we support health and well-being across the Group, with the aim of promoting a positive working environment and fulfilment for existing and prospective colleagues and enhancing our employer brand.

Recruitment to meet the growing workload and new skill requirements has progressed successfully, building on our 230-strong workforce.  Several former colleagues who left the business during the downturn have re-joined us and we have invested further in apprenticeships across the Group.

Earlier this year, we carried out a Group-wide engagement survey to objectively gather views from our colleagues on how they feel about a range of factors related to working within the Group.  Overall, the results were positive, showing a high degree of colleague engagement and a strong sense of pride in the companies they work for.  The survey also identified areas for improvement, which has helped focus management priorities throughout the year.

We recently launched a Group management development programme, bringing directors, managers and supervisors together for a tailored course, focusing on key skills and knowledge of employment legislation and giving our management teams a practical toolkit for best practice in people management.

Further progress has been made with standardising our people management policies and guidelines, giving our managers and staff access to an efficient and supportive centralised resource, improving compliance and consistency across the Group.  We also completed an extensive programme of work to bring the Group into compliance with GDPR requirements.

Finally, on people, I would like to thank John Hayward, my predecessor for his time and support during our handover.  I very much enjoyed working with John, under whose leadership the Group has been built on core values of honesty and integrity.  These values are clearly evident across the business and remain fundamental to everything we do.

Strategy and Outlook

The Group is well placed to take advantage of improving market conditions and realise the benefits of investment in people, new equipment and supporting processes.

Precision Machined Components Division

Delivery of high-quality, safety-critical components for the oil and gas industry remains the predominant focus for PMC in the medium-term, where our expertise is increasingly well recognised and respected.  Oil and gas market commentators and our key customers remain cautiously optimistic about the continuing growth in international exploration and production investment, with many major projects due to commence in 2020.

Tendering activity increased sharply towards the end of the year and has continued to rise.  The closing order book in September 2018 was 54% up on the same period in 2017, with 14% of the total order book coming from new customers secured through 2018.  The Divisional order intake reached its highest level in October 2018 for over four years, with a rolling 12-month order intake 24% higher than at the same time in 2017.

Investment in people to manage our existing customers and drive new product and new customer opportunities in target areas has helped improve our responsiveness and success rates.  Closer customer relationships have given us greater visibility of new leads, helping to inform load and capacity planning within our production teams.

Our capex investment programme will accelerate through 2019, further equipping the Division with the very latest high-performance machining centres that allow us to support a widening range of products for our customers, as they seek to consolidate their approved supplier lists and to value-engineer their designs with our input.

Margin improvement remains a focus, supported by further investment in skills and training, the development of innovative manufacturing processes and more effective management of our supply chain and subcontracted services.

Beyond the organic growth seen in our rising order book, increasing our capability, scale and reach through acquisitions remains a strategic focus.  Recent standardisation of operating models and experience gained through effective collaboration between our individual brands has helped blueprint an effective Group approach to future acquisitions of highly specialised, niche manufacturing operations in target markets.

Cylinders Division

Our Cylinders Divisional strategy remains firmly on course to achieve greater inroads in target markets.

The diversification into global defence markets from 2014 has proved highly successful, strengthened by the opening of our German office and the development of key relationships and opportunities in new regions.  This sector remains the organic growth focus for the foreseeable future with strong potential to replicate the success seen with the Royal Navy across NATO-friendly navies worldwide.

In the UK, submarine and surface warship build programmes remain largely unaffected by cuts in defence spending and we are established suppliers to the extensive Dreadnought submarine and Type 26 frigate projects, with order book visibility to 2023 and project horizons out to at least 2030.

Defence budgets in the US remain robust and our local team continue to drive the qualification of our products, while managing key relationships in US army, navy and air force departments.  Our rapid response in providing a solution for the USAF F-22 Raptor has helped promote our reputation in this target market.

Our Integrity Management services have established a strong presence and an enviable reputation in the UK defence market with the in-service submarine programme.  This business has tremendous potential for growth outside the UK and Europe and is a focus area for accelerated development.

Strategically we are channelling efforts through our German office to promote safety-critical Integrity Management services to navies worldwide.

In oil and gas markets, we are well positioned to respond to a predicted upturn in drillship and semi-submersible projects from 2020.  It is notable that the Cylinders Division recently delivered the only two major air pressure vessel supply contracts awarded globally in this sector and is the 'go to' supplier as the upturn approaches.  Customer relationships remain strong and our investment in product R&D continues, keeping us at the forefront of this sector.

As the focus on renewable energy usage grows globally, we are set to build on our breakthrough order in 2018 for the supply of hydrogen refuelling station cylinders in the UK.  We recently secured a second major European order and are well positioned with our tendering partners to win further contracts.  There are several target customers in the European hydrogen market and we are well positioned as a key supplier, partner and service provider, offering technical advice and support from the very early stages of project development.  There are significant growth opportunities for large, high-pressure cylinders in this market as hydrogen power plays an increasing role in mass transport systems worldwide.

Further investment in new technology to advance our production, handling and finishing processes is underway, bringing improved efficiency and reliability.  We are also working with academic partners to evaluate innovative production methods for our ultra-large cylinders and assessing improvements to supply chain management for materials and subcontracted services.

Alternative Energy

The global outlook for renewable natural gas (RNG) has improved again throughout the year with governments and energy majors increasing their commitment to renewables in the global energy mix, with RNG playing a significant role, particularly in the US and Europe.

Significant progress has been made in forming relationships with project developers, grid operators and energy majors in these key regions and our strategic decision to centre the Division in Vancouver positions Greenlane Biogas perfectly to take advantage of new opportunities.  With a closing order book of £7m and a £30m pipeline of high-probability opportunities for order placement in 2019, the potential for Greenlane in this growing sector appears to be very strong.

In June 2018, we announced that strategic options would be evaluated for our Alternative Energy Division and Greenlane Biogas that would help unlock value for our shareholders and refocus the Group on core specialist manufacturing activities in defence and oil and gas markets.

As a result of this strategic review and following the appraisal of outright sale and merger options, we have commenced a process to list Greenlane Biogas on the TSX-V. We will remain a supportive minority shareholder and anticipate retaining our holding for the medium term. 

Chris Walters

Chief Executive

10 December 2018

CHIEF FINANCIAL OFFICER'S REPORT 2018

Highlights

Group Revenue* down 7% to £32.2m (2017: £34.6m)	Manufacturing Revenue* up 13% to £21.2m (2017: 18.8m)	Adjusted operating Profit** £0.5m (2017: 1.6m)	Return on Revenue*** 2% (2017: 5%)
Net operating cash inflow**** £0.5m (2017: £0.9m)	Closing Net Debt £6.7m (2017: £11.1m)	Fundraising of £4.8m	R&D tax credit benefits as a % of revenue of 2.5% (2017: 1.5%)

* continuing operations only

** operating profit excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits.

*** adjusted operating profit divided by revenue

****before cash outflow for exceptional costs

I am pleased to present the results of what has been another very busy and transitional year for the Group.  We have continued to shape the finance teams to focus on business insight and real-time analysis to support commercial decision making, investing in systems and processes to facilitate this, whilst continuously improving the efficiency of financial reporting.

Following the disposal of the entire issued share capital of Hydratron Limited all results and costs for the Engineered Products Division have been presented as discontinued operations, commentary is in respect of continuing operations.

The continuing Manufacturing Divisions are experiencing an uplift in activity with revenues from these Divisions 13% up on the prior year.  Second-half was particularly strong, 32% up on the first-half reflecting both the momentum of work in the oil and gas sector and phasing of large defence projects.

Alternative Energy also had a stronger second-half returning an adjusted operating profit of £0.4 million.  Four new biogas upgrader projects were awarded and commenced in the year.  Non-upgrader sales for after-market support and other products decreased to £2.2 million (2017: £3.2 million). Whist revenue has reduced significantly to £11.1 million in 2018 (2017: £15.8 million), profitability in this Division has continued to improve, gross profit margin has increased by 5ppt to 22% in the year.   

Across the Group, we have continued to invest in new equipment and technology.  £1.1 million in new plant and machinery has been invested in the Manufacturing Divisions.    A further £0.4 million has been invested in IT systems and technology, predominantly to support the AE Division. The R&D tax credit relief has increased with claims in 2018 expected to be in excess of 2.5% of revenue (2017: 1.5%).   

In the short-term, the financial priorities continue to focus on the reduction in net debt with working capital management at the fore, whilst investing in new equipment, using efficient finance arrangements where applicable, and maximising available tax credits reflecting the focus on innovation.  Debtor days have reduced to 53 (2017: 61) reflecting the continued focus on key account management and mix of customer balances at the year-end.  This, along with the phasing of contract revenues, has resulted in a small net investment in working capital for continuing operations in 2018 of £0.2 million (2016: £1.5 million).

The oversubscribed share placing in November 2017 and the disposal of the EP Division in June 2018, both immediately reduced net debt which closed at £6.7 million (2017: £11.1 million) and this positions the Group well to capitalise on the clear momentum in market opportunity being experienced in the Manufacturing Divisions.

Trading result

Manufacturing

The Manufacturing Divisions contributed £2.6 million of adjusted operating profit in 2018 (2017: £2.9 million), whilst the volume of work increased year-on-year the mix of work delivered was at an overall lower gross margin which has reduced return on revenue. Administrative costs remained at 22% of revenue due to the strategic investment in people and skills in readiness for anticipated workload in 2019 and beyond.

Alternative Energy

The benefits of the restructuring in 2017 are visible in Gross Margin improvement with 2018 seeing a 5ppt increase to 22% (2017: 17%).  The revenue in the first-half of £2.8 million (2017: 8.0 million) was adversely impacted by the restructuring in 2017 but recovered in the second-half to £8.3 million (2017: 7.8 million) and the Division was profitable with a Return on Revenue of 5% in this half.  

Central Costs

Unallocated central costs (before M&A, amortisation on acquired businesses and exceptional charges) were £1.6 million (2017: £1.4 million).

In respect of the Group's various share option plans there was a net nil share based payment cost in the year (2017: £0.1 million).

Exceptional items

Reorganisation and redundancy costs in the year were £0.3 million (2017: £0.7 million), which predominantly relate to the final parts of the Alternative Energy Division restructuring.

On 21 July 2018, John Hayward informed the Board of his decision to retire as Chief Executive Officer. John subsequently stepped down from the Board, with effect from 1 October 2018. CEO retirement costs include payment in lieu of contractual notice (£216,000) with the balance being settlement costs.

M&A related exceptional items and amortisation costs were £2.6 million (2017: £2.0 million).  The prior year included the £0.6 million write-back of the deferred consideration of Martract Limited.  

Taxation

The tax credit for the year was £0.6 million (2017: £0.8 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 significant credit in the 2018. The applicable current tax rate for the year is 19% (2017: 19.5%). 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.

R&D tax benefits in respect of 2018 are projected to be around £0.8 million (2017: £0.5 million).  

Corporation tax paid in the year totalled £0.1 million (2017: refund £0.2 million), which relates to the UK. Tax in overseas territories is minimal.

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 which arose from trading activities, was to movements in the value of the Euro, the CA Dollar and the US Dollar relative to Sterling. As the 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 the currency exposure is actively managed at the outset of a project where possible matching the contract currency with the contracts costs.  Where appropriate forward contracts taken out to cover the residual 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 2018 the net gain recognised in adjusted operating profit in respect of realised and unrealised transactions in Euro, US Dollar, Canadian Dollar and New Zealand Dollar was £0.1 million (2018: immaterial) .  In 2018 a loss of £0.1 million (2017: immaterial) was recorded below adjusted operating profit in respect of the retranslation of foreign operations.

As at 29 September 2018 there were no forward contracts in place (2017: none).

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

Disposal of Hydratron

On 7 June 2018, the Group completed the disposal of the entire issued share capital of its subsidiary, Hydratron Limited, to Pryme Group Limited, majority owned by Simmons Private Equity LP. This business was reported by the Group as the Engineered Products Division.

The initial consideration was £1.1 million (less costs and retentions), along with potential deferred contingent consideration up to a maximum of £2.25m, dependent on revenue in the twelve months post completion. As detailed in Note 5 to these financial statements a goodwill impairment of £1.7 million was recognised as a charge in the period ended 29 September 2018.

The £2.6 million loss from discontinued operations comprise the operating loss for the period up to disposal, costs to sell and impairment charges associated with the business.

Financing, cash flow and leverage

Operating cash inflow for continuing operations before movements in working capital and reorganisation and redundancy costs was £1.8 million (2017: £2.5 million).  After a net working capital inflow of £0.2 million (2017: net investment £1.5 million), cash generated from operations was £2.0 million (2017: £0.9 million). The change in working capital arose from the timing of large contract down payments and phasing of contract revenues in Cylinders and AE Divisions.

Cash outflow in respect of discontinued operations trading up to the point of disposal was £0.4 million.

Cash outflow in respect of exceptional costs was £1.3 million (2017: £0.8 million).

Cash inflows in respect of the disposal of EP was £1.1 million.  Capital expenditure on plant and machinery was £1.1 million, of which £0.6 million was in the PMC Division and £0.4 million in the Cylinders Division.  Where appropriate new machines are now acquired using dedicated equipment finance and these assets are then self-financing through trading cash inflow, in 2018 £0.5 million of new finance leases were utilised.  £1.1 million (2017: £0.9 million) of the net debt relates to finance leases in respect of plant and machinery.

Net debt was £6.7 million (2017: £11.1 million), the decrease driven primarily by the share issue and disposal of the EP Division.  The Group's £15 million revolving credit facility ("RCF") was £11.8 million drawn at the year-end.

The increase in adjusted EBITDA and reduction in net debt means the Net Debt to Adjusted EBITDA leverage ratio in respect of the RCF facility reduced to 2.3:1 at 29 September 2018 (2017: 3.1:1).  All facility covenants have been complied with throughout the period and the facility has been extended to January 2020.

Earnings per share and dividends

Adjusted earnings per share decreased to 0.7 pence (2017: 10.0 pence) for continuing operations.  Basic loss per share was (13.9) pence (2017: (4.0) loss per share) for continuing operations.

No dividends were paid in the year (2017: nil) and no dividends have been declared in respect of the year ended 29 September 2018 (2017: nil).  Distributable reserves in the parent company decreased 23% to £16.9 million (2017: £22.1 million), driven primarily by the disposal of Hydratron Limited.

Statement of financial position

Goodwill and intangible assets (at cost) decreased by £2.1 million to £35.8 million (2017: £37.9 million). £2.5 million related to the disposal of EP, the balance was investment in new product development and investment in IT systems.  Amortisation in the year was £2.6 million (2017: £2.4 million).   

Net current assets increased to £9.6 million (2017: £9.1 million). This increase is predominantly due to an increase in cash and the phasing of large contract balances between years.

Non-current liabilities decreased to £14.4 million (2017: £18.0 million) after borrowings reduced to £12.6 million (2017: £15.6 million).

Net assets decreased by 1.2% to £33.4 million (2017: £33.8 million) and net asset value per share decreased to 180 pence (2017: 233 pence) due to the dilutive impact of the share placing.

Joanna Allen

Chief Financial Officer

10 December 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 52 week period ended 29 September 2018

	Notes	52 weeks ended 29 September 2018	52 weeks ended 30 September 2017
		£'000	£'000
Revenue	1	32,245	34,557
Cost of sales		(22,605)	(24,851)
Gross profit		9,640	9,706
Administration expenses		(9,093)	(8,137)
Operating profit before M&A costs, amortisation and exceptional charges and credits	1	547	1,569
Separately disclosed items of administrative expenses:
Amortisation and M&A related exceptional items	3	(2,584)	(1,968)
Other exceptional charges and credits	4	(688)	(667)
Operating loss		(2,725)	(1,066)
Finance income		6	4
Finance costs		(400)	(343)
Loss before taxation	2	(3,119)	(1,405)
Taxation	6	589	823
Loss for the period from continuing operations		(2,530)	(582)
Discontinued operations
Loss for the period from discontinued operations	5	(2,558)	(565)
Loss for the period attributable to owners of the parent		(5,088)	(1,147)
Other comprehensive income Items that may be reclassified subsequently to profit or loss: Currency translation differences on translation of foreign operations		(60)	(4)
Total comprehensive income for the period attributable to the owners of the parent		(5,148)	(1,151)
Basic earnings per share
From continuing operation	7	(13.9)p	(4.0)p
From discontinued operations	7	(14.1)p	(3.9)p
From loss for the period		(28.0)p	(7.9)p
Diluted earnings per share
From continuing operation	7	(13.9)p	(4.0)p
From discontinued operations	7	(14.1)p	(3.9)p
From loss for the period		(28.0)p	(7.9)p

CONSOLIDATED BALANCE SHEET

As at 29 September 2018

	Notes	29 September 2018	30 September 2017
		£'000	£'000
Non-current assets
Goodwill	9	14,370	16,062
Intangible assets	10	11,444	13,658
Property, plant and equipment		12,032	12,583
Deferred tax asset	15	402	343
		38,248	42,646
Current assets
Inventories		4,383	4,986
Trade and other receivables	11	11,998	11,339
Cash and cash equivalents		6,140	4,791
Current tax		35	-
		22,556	21,116
Total assets		60,804	63,762
Current liabilities
Trade and other payables	12	(12,745)	(11,748)
Borrowings	13	(241)	(219)
Current tax liabilities		-	(23)
		(12,986)	(11,990)
Non-current liabilities
Other payables	12	(198)	(238)
Borrowings	13	(12,636)	(15,642)
Deferred tax liabilities	15	(1,591)	(2,089)
		(14,425)	(17,969)
Total liabilities		(27,411)	(29,959)
Net assets		33,393	33,803
Equity
Share capital		930	725
Share premium account		26,172	21,637
Translation reserve		(465)	(405)
Retained earnings		6,756	11,846
Total equity		33,393	33,803

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 52 week period ended 29 September 2018

	Notes	Share capital	Share premium account	Translation reserve	Profit and loss account	Total equity
		£'000	£'000	£'000	£'000	£'000
Balance at 02 October 2016		724	21,620	(401)	12,872	34,815
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
Share based payments		-	-	-	(2)	(2)
Shares issued		205	4,535	-	-	4,740
Transactions with owners		205	4,535	-	(2)	4,738
Loss for the period		-	-	-	(5,088)	(5,088)
Other comprehensive income: Exchange differences on translating foreign operations		-	-	(60)	-	(60)
Total comprehensive income		-	-	(60)	(5,088)	(5,148)
Balance at 29 September 2018		930	26,172	(465)	6,756	33,393

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 52 week period ended 29 September 2018

	Notes	52 weeks ended 29 September 2018	52 weeks ended 30 September 2017
		£'000	£'000
Operating activities
Cash flows from operating activities	16	291	319
Finance costs paid		(394)	(324)
Income tax (paid) / refund		(56)	216
Net cash inflow from operating activities		(159)	211
Investing activities
Proceeds from sale of fixed assets		127	21
Purchase of property, plant and equipment		(1,009)	(961)
Cash outflow on purchase of subsidiaries net of cash acquired		-	(3,597)
Cash inflow on disposal of subsidiaries net of cash disposed of		1,088	-
Net cash used in investing activities		206	(4,537)
Financing activities
New borrowings		-	3,350
Repayment of borrowings		(3,438)	(324)
Shares issued		4,740	18
Net cash from financing activities		1,302	3,044
Net increase / (decrease) in cash and cash equivalents		1,349	(1,282)
Cash and cash equivalents at beginning of period		4,791	6,073
Cash and cash equivalents at end of period		6,140	4,791

NOTES

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 2017 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 29 September 2018 was approved by the Board on 10 December 2018 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 29 September 2018 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 30 September 2017 have been delivered to the Registrar of Companies.

Going concern

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

Management has produced forecasts for all business units which have been reviewed by the Directors. These demonstrate that the Group is forecast to generate profits and cash in 2018/2019 and beyond and that the Group has sufficient cash reserves and bank facilities to enable it to meet its obligations as they fall due for a period of at least 12 months from when these financial statements have been signed.

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 29 September 2018

	Cylinders	Precision Machined Components	Manufacturing sub total	Alternative Energy	Central costs	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
- total	9,942	11,551	21,493	11,078	-	32,571
- revenue from other segments	-	(83)	(83)	-	-	(83)
- intra segment revenue from discontinued operations	-	(243)	(243)	-	-	(243)
Revenue from external customers	9,942	11,225	21,167	11,078	-	32,245
Gross Profit	3,511	3,694	7,205	2,405	30	9,640
Operating profit / (loss) before M&A costs, amortisation and exceptional charges and credits	1,099	1,501	2,600	(502)	(1,551)	547
Amortisation and M&A related exceptional items	-	(1,741)	(1,741)	(768)	(75)	(2,584)
Other exceptional charges	(27)	(60)	(87)	(177)	(424)	(688)
Operating profit / (loss)	1,072	(300)	772	(1,447)	(2,050)	(2,725)
Net finance (costs) / income	(15)	(8)	(23)	6	(377)	(394)
Profit / (loss) before tax	1,057	(308)	749	(1,441)	(2,427)	(3,119)
Segmental net assets *	6,392	54,254	60,646	11,792	(39,045)	33,393
Other segment information:
Capital expenditure	410	600	1,010	65	18	1,093
Depreciation	473	635	1,108	72	125	1,305
Amortisation	-	1,741	1,741	768	75	2,584

 

* 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.

 

 

1. Segment analysis (continued)

 

For the 52 week period ended 30 September 2017

	Cylinders	Precision Machined Components	Manufacturing sub total	Alternative Energy	Central costs	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
- total	8,403	10,703	19,106	15,800	-	34,906
- revenue from other segments	-	(79)	(79)	-	-	(79)
- intra segment revenue from discontinued operations	-	(270)	(270)	-	-	(270)
Revenue from external customers	8,403	10,354	18,757	15,800	-	34,557
Gross Profit	3,408	3,591	6,999	2,731	(24)	9,706
Operating profit / (loss) before M&A costs, amortisation and exceptional charges and credits	1,062	1,840	2,902	3	(1,336)	1,569
Amortisation and M&A related exceptional items	-	(1,691)	(1,691)	(708)	431	(1,968)
Other exceptional charges	(34)	(57)	(91)	(413)	(163)	(667)
Operating profit / (loss)	1,028	92	1,120	(1,118)	(1,068)	(1,066)
Net finance (costs) / income	(9)	(6)	(15)	4	(328)	(339)
Profit / (loss) before tax	1,019	86	1,105	(1,114)	(1,396)	(1,405)
Segmental net assets *	6,271	24,370	30,641	14,736	(14,100)	31,277
Other segment information:
Capital expenditure	(37)	166	129	72	68	269
Depreciation	403	700	1,103	105	122	1,330
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, the provision of financing loans provided by Pressure Technologies plc and discontinued operations.

 

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

Revenue	2018	2017
	£'000	£'000
United Kingdom	13,329	13,197
Europe	6,430	6,935
Rest of the World	12,486	14,425
	32,245	34,557

1. Segment analysis (continued)

The Group's largest customer contributed 9% to the Group's revenue (2017: 12%) and is reported within the Alternative Energy segment.

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

Revenue	2018	2017
	£'000	£'000
Oil and gas	12,477	10,608
Defence	6,620	6,404
Industrial gases	2,019	1,745
Alternative energy	11,129	15,800
	32,245	34,557

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	2018	2017
	£'000	£'000
Sale of goods	28,213	30,694
Rendering of services	4,032	3,863
Total sales - continuing operations	32,245	34,557

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

		2018				2017
		United Kingdom	Rest of the World	Total		United Kingdom	Rest of the World	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Non-current assets		38,194	54	38,248		42,594	52	42,646
Additions to property, plant and equipment		1,030	63	1,093		240	52	292

 

2. Loss before taxation

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

	2018	2017
	£'000	£'000
Depreciation of property, plant and equipment - owned assets	1,318	1,382
Depreciation of property, plant and equipment - assets under finance lease and hire purchase agreements	60	56
(Profit)/Loss on disposal of fixed assets	(69)	21
Amortisation of intangible assets acquired on business combinations	2,584	2,407
Amortisation of grants receivable	(86)	(94)
Staff costs - excluding share based payments	12,031	11,058
Cost of inventories recognised as an expense	17,420	21,418
Operating lease rentals:
- Land and buildings	306	353
- Machinery and equipment	86	89
Foreign currency (gain)/loss	(102)	37
Share based payments	(2)	121

 

3.   Amortisation and M&A related exceptional items

	2018	2017
	£'000	£'000
Amortisation of intangible assets	(2,584)	(2,407)
M&A costs	-	(158)
Deferred consideration write back	-	597
	(2,584)	(1,968)

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

 

 

4. Other exceptional (charges) / credits

	2018	2017
	£'000	£'000
Reorganisation and redundancy	(333)	(674)
CEO retirement costs	(346)	-
Costs in relation to HSE investigation	(9)	(21)
Write back of KGTM loan previously provided for	-	28
	(688)	(667)

 

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.

On 21 July 2018, John Hayward informed the Board of his decision to retire as Chief Executive Officer. John subsequently stepped down from the Board, with effect from 1 October 2018. CEO retirement costs include payment in lieu of contractual notice (£216,000) with the balance being settlement costs.

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 over and above those 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 found in note 18.

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

 

5.   Results of discontinued operation

	2018	2017
	£'000	£'000
Revenue	2,375	3,861
Expenses	(2,623)	(4,333)
	_______	_______
Operating Profit pre-exceptional costs	(248)	(472)
Exceptional costs:
Reorganisation and redundancy	(15)	(36)
Costs to sell	(457)	-
Loss after tax on disposal (Note 17)	(114)	-
Goodwill impairment	(1,692)	-
	_______	_______
Loss before taxation	(2,526)	(508)
Taxation	(32)	(57)
	_______	_______
Loss for the year	(2,558)	(565)

 

On 7 June 2018, and as separately communicated to Shareholders on that date, the Group completed the disposal of the entire issued share capital of its subsidiary, Hydratron Limited, to Pryme Group Limited, majority owned by Simmons Private Equity LP. This business was reported by the Group as the Engineered Products segment.

 

The Goodwill impairment relates to a full write down of the goodwill which arose on the acquisition of Hydratron Limited. The strategic decision to dispose of Hydratron Limited (note 17) provided an indicator of impairment, with the divestment crystallising a fair market value assessment.

	2018	2017
	£'000	£'000
Cash flows from discontinued operations
Net cash used in operating activities	(481)	(527)
Net cash from investing activities	-	(25)
Net cash from financing activities	290	726
	_______	_______
Net cash flows for the year	(191)	174

6. Taxation

	2018	2018	2018	2017	2017	2017
	£'000	£'000	£'000	£'000	£'000	£'000
	Continuing	Discontinued	Total	Continuing	Discontinued	Total
Current tax (credit)/expense
Current tax	-	-	-	-	-	-
Over provision in respect of prior years	-	-	-	(336)	(69)	(405)
Foreign tax	-	-	-	49	-	49
	-	-	-	(287)	(69)	(356)
Deferred tax (credit)/expense
Origination and reversal of temporary differences	(524)	-	(524)	(527)	(7)	(534)
Deferred tax assets no longer recognised	20	32	52	-	-	-
Over provision in respect of prior years	(85)	-	(85)	(9)	133	124
	(589)	32	(557)	(536)	126	(410)
Total taxation credit	(589)	32	(557)	(823)	57	(766)

 

Corporation tax is calculated at 19% (2017: 19.5%) of the estimated assessable profit for the period. Deferred tax is calculated at the rate applicable when the temporary differences unwind.

The charge for the period can be reconciled to the profit per the consolidated statement of comprehensive income as follows:

	2018 £'000	2018 £'000	2018 £'000	2017 £'000	2017 £'000	2017 £'000
	Continuing	Discontinued	Total	Continuing	Discontinued	Total
Loss before taxation	(3,119)	(2,526)	(5,645)	(1,405)	(508)	(1,913)
Theoretical tax at UK corporation tax rate 19% (2017: 19.5%)	(593)	(480)	(1,073)	(274)	(99)	(373)
Effect of (credits) / charges:
- non-deductible expenses and other timing differences	269	321	590	190	14	204
- disallowable release of deferred consideration	-	-	-	(113)	-	(113)
- other disallowable acquisition costs	-	-	-	(49)	-	(49)
- research and development allowance	(68)	-	(68)	-	-	-
- adjustments in respect of prior years	(85)	-	(85)	(351)	70	(281)
- effect of unrealised losses on discontinued operations	(108)	159	51	(72)	72	-
- change in taxation rates	(5)	-	(5)	(2)	-	(2)
- differences in corporation tax rates	54	-	54	(68)	-	(68)
- losses not previously recognised now utilised	(73)	-	(73)	(84)	-	(84)
- deferred tax assets no longer recognised	20	32	52	-	-	-
Total taxation credit	(589)	32	(557)	(823)	57	(766)

 

7. Earnings per ordinary share

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.

For the 52 week period ended 29 September 2018

	Continuing £'000	Discontinued £'000	Total £'000
Loss after tax	(2,530)	(2,558)	(5,088)
			No.
Weighted average number of shares - basic			18,178,407
Dilutive effect of share options			17,944
Weighted average number of shares - diluted			18,196,351
Basic loss per share	(13.9)	(14.1)	(28.0)
Diluted loss per share	(13.9)	(14.1)	(28.0)

 

The Group adjusted earnings per share is calculated as follows:

Loss after tax	(2,530)	(2,558)	(5,088)
Amortisation and M&A related exceptional items (note 3)	2,584	1,692	4,276
Other exceptional charges and credits (note 4)	688	586	1,274
Theoretical tax effect of above adjustments	(622)	(90)	(712)
Adjusted earnings	120	(370)	(250)
Adjusted earnings per share	0.7p	(2.0)p	(1.4)p

 

For the 52 week period ended 30 September 2017

	Continuing £'000	Discontinued £'000	Total £'000
Loss after tax	(582)	(565)	(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	(4.0)	(3.9)	(7.9)
Diluted loss per share	(4.0)	(3.9)	(7.9)

 

 

The Group adjusted loss per share is calculated as follows:

Loss after tax	(582)	(565)	(1,147)
Amortisation and M&A related exceptional items (note 3)	1,968	-	1,968
Other exceptional charges and credits (note 4)	667	36	703
Theoretical tax effect of above adjustments	(599)	(7)	(606)
Adjusted earnings	1,454	(536)	918
Adjusted earnings per share	10.0	(3.7)	6.3

8. Dividends

 

No dividends have been declared in respect of the year ended 29 September 2018 or 30 September 2017.

9. Goodwill

	Total £'000
Cost and gross carrying amount
At 1 October 2016	15,020
Acquired through business combinations	1,042
At 30 September 2017	16,062
Removed upon business disposal (note 17)	(1,692)
At 29 September 2018	14,370

	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
Alternative Energy
The Greenlane Group	October 2014	4,860
At 29 September 2018		14,370

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 5 acquisitions shown above.

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

The recoverable amounts of the cash generating units (CGUs) are determined from value in use calculations, covering a four year forecast and applying a discount rate of 12.5% for Precision Machined Components and 15% for Alternative Energy (2017: 11.6% for both). The same discount rate is used for all the Precision Machined Components CGUs due to the businesses having common sources of finance and operating in very similar markets.

The forecast is approved by management and the Board of Directors, and is based on a bottom up assessment of costs and uses the known and estimated pipeline.

In the manufacturing divisions, the forecasts used for years two to four assume revenue growth, returning to levels achieved in 2014 by 2022 and into perpetuity, no long-term rate of growth or inflation is incorporated into perpetuity. In the Alternative Energy division, the forecasts used for years two onwards, prudently assume no revenue growth. A perpetuity is used as a terminal value in this calculation.

Management's key assumptions are based on their past experience and future expectations of the market over the longer term. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes to selling prices and direct costs.

Apart from the considerations described in determining the value-in-use of the cash generating unit above, the Group management does not believe that possible changes in the assumptions underlying the value in use calculation would have an impact on the carrying value of goodwill.

After applying sensitivity analysis in respect of the results and future cash flows, in particular for presumed growth rates and discount rates, management believe that no impairment is required for Precision Machined Components. Management is not aware of any other changes that would necessitate changes to its key estimates. At 29 September 2018, no reasonable expected change in the key assumptions (including a 5% decrease in forecast cash flows) would give rise to an impairment charge for Precision Machined Components. The Alternative Energy division was assessed against a number of factors and incorporated the findings of the strategic review undertaken by the Board. The announcement post-year end divesting of the Alternative Energy Division indicated sufficient headroom.

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 2 October 2016	-	44	-	5,316	11,702	17,062
Additions	-	432	564	-	-	996
Acquired through business combination	2,796	-	-	-	944	3,740
At 30 September 2017	2,796	476	564	5,316	12,646	21,798
Additions	-	326	44	-	-	370
Removed upon business disposal	-	-	-	-	(766)	-
At 29 September 2018	2,796	802	608	5,316	11,880	21,402
Amortisation
At 2 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
Charge for the period	187	98	40	703	1,556	2,584
Removed upon business disposal	-	-	-	-	(766)	(766)
At 29 September 2018	342	108	40	2,834	6,634	9,958
Net book value
At 29 September 2018	2,454	694	568	2,482	5,246	11,444
At 30 September 2017	2,641	466	564	3,185	6,802	13,658

 

Remaining useful economic life at 29 September 2018

13 years

4 years

9 years

4 years

5 years

 

11. Trade and other receivables

	2018	2017
	£'000	£'000
Current
Trade receivables	8,384	8,820
Amounts due from customers for construction contract work	1,106	1,256
Other receivables	646	216
Prepayments and accrued income	1,862	1,047
	11,998	11,339

The average credit period taken on the sale of goods and services was 53 days (2017: 61 days) in respect of the Group. Two debtors individually accounted for over 10% of trade receivables and represented 36% of the total balance. In 2017, one debtor accounted for over 10% of trade receivables and represented 14% of the total balance.

Ageing of past due but not impaired receivables:

	2018	2017
	£'000	£'000
Days past due:
0 - 30 days	954	1,702
31 - 60 days	172	310
61 - 90 days	186	360
91 - 120 days	87	50
121+ days	464	84
Total	1,863	2,506

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

12. Trade and other payables

	2018	2017
	£'000	£'000
Amounts due within 12 months
Trade payables	3,741	5,030
Progress billings on construction contracts in excess of work completed	3,698	1,368
Other tax and social security	689	757
Accruals, deferred income and other payables	4,617	4,593
Total due within 12 months	12,745	11,748
Amounts due after 12 months
Accruals, deferred income and other payables	198	238
Total due after 12 months	198	238

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 29 September 2018 is £600,000 (2017: £491,000).

 

13. Borrowings

	2018 £'000	2017 £'000
Non-current
Bank borrowings	11,800	15,000
Finance lease liabilities	836	642
	12,636	15,642
Current
Finance lease liabilities	241	219
	241	219
Total borrowings	12,877	15,861

 

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:

	2018	2017
	£'000	£'000
Due within one year
Finance lease liabilities	241	219
Due for settlement after one year
Bank borrowings	11,800	15,000
Finance lease liabilities	836	642

The group has the following undrawn borrowing facilities:

	2018	2017
	£'000	£'000
Expiring beyond one year	3,200	-

14. 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.

	2018 £'000	2017 £'000
Costs incurred and profit recognised to date	18,268	19,862
Less: Progress billings	(20,860)	(19,974)
Net balance sheet position for ongoing contracts	(2,592)	(112)
Representing:
	2018 £'000	2017 £'000
Amounts due from customers for construction contract work	1,106	1,256
Amounts due from customers for construction contract work	(3,698)	(1,368)
Net balance sheet position for ongoing contracts	(2,592)	(112)

 

 

15. 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 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)
Prior year adjustment	-	-	-	-	-	-
Credit / (charge)  to income	244	296	(97)	(33)	147	557
Removed upon business disposal (note 17)	-	-	-	-	-	-
At 29 September 2018	(186)	(1,308)	53	105	147	(1,189)

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

	2018	2017
	£'000	£'000
Non-current asset Deferred tax asset	402	343
Non-current liabilities Deferred tax liabilities	(1,591)	(2,089)
	(1,189)	(1,746)

 

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

 

16. Consolidated cash flow statement

	2018	2017
	£'000	£'000
Loss after tax	(5,088)	(1,147)
Adjustments for:
Finance costs - net	394	339
Depreciation of property, plant and equipment	1,378	1,438
Amortisation of intangible assets	2,584	2,407
Share option costs	(2)	121
Income tax credit	(589)	(766)
(Profit) / loss on disposal of property, plant and equipment	(69)	21
Goodwill impairment	1,692	-
Exceptional deferred consideration released and revaluation	-	(597)
Exceptional impairment of assets	-	11
Changes in working capital:
(Increase) / decrease in inventories	(521)	243
(Increase) / decrease in trade and other receivables	(1,613)	413
Increase / (decrease) in trade and other payables	2,125	(2,164)
Cash flows from operating activities	291	319

17. Business disposals

On 7 June 2018, the Group completed the disposal of the entire issued share capital of its subsidiary, Hydratron Limited, to Pryme Group Limited, majority owned by Simmons Private Equity LP. This business was reported by the Group as the Engineered Products segment.

The initial consideration was £1.1m (less costs and retentions), along with potential deferred contingent consideration up to a maximum of £2.3m, dependent on revenue in the twelve months post completion. As detailed in Note 5 to these financial statements a goodwill impairment of £1.7m was recognised as an exceptional charge in the period ended 29 September 2018.

The table below summarises the profit on disposal of Hydratron Limited:

	£'000
Gross Proceeds	1,112
Deferred and contingent consideration	-
	________
Net proceeds	1,112
Net book value of assets disposed of:
Goodwill	-
Property, plant & equipment	208
Inventories	1,124
Trade and other receivables	954
Cash and cash equivalents	24
Trade and other payables	(1,084)
	________
Loss on disposal of Hydratron Limited	(114)
	________

 

18. Contingent liabilities

Following the fatal accident at Chesterfield Special Cylinders Limited ("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 preliminary statement on 12 June 2018 and the HSE investigation into this accident remains ongoing. On 1 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 IAS 37 "Provisions, Contingent Liabilities and Contingent Assets".

19. 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:

	2018	2017
	£'000	£'000
Short-term employee benefits (including Employers NI)	975	622
Post-employment benefits	45	41
Share based payments	(12)	63
Total remuneration	1,008	726

 

The interests of Directors in dividends paid during the year are disclosed in the Report of the Remuneration Committee.

During the period ended 29 September 2018, Pressure Technologies spent £37,108 (2017: £64,779) with Vias Digital Limited with which one of the Non-Executive Directors, Alan Wilson, is a connected person.

During the period ended 3 October 2015, Pressure Technologies purchased 5 Gas Transportation Modules (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 due from Kelley GTM, LLC of $3,500,000. The Directors consider that the recoverability of these loans is not certain and therefore made full provision against the value of the loans in the period ended 3 October 2015.

20. Post Balance sheet event

On 9 December 2018 entered into a binding letter of intent ("LOI") with Creation Capital Corp (TSX-V: CRN.P) ("Creation Capital") a capital pool company listed on the TSX-V to sell its wholly-owned subsidiary, PT Biogas Holdings Limited, which is the holding company for the Group's Alternative Energy Division for a total consideration of £11.1 million.  The process is expected to complete in January 2019.

21. 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 12 February 2019.

 

END

 

 

FR FFMESSFASEFE