Preliminary Results 2009

RNS Number : 7275D

Pressure Technologies PLC

08 December 2009

 



PRELIMINARY RESULTS 2009

Pressure Technologies plc ("Pressure Technologies" or the "Group") is pleased to announce its preliminary results for the full year ended 3 October 2009.

Financial highlights:

	Revenue increased to £26.2 million (2008: £23.7 million)
	Operating profit of £5.0 million (2008: £4.9 million)
	Underlying operating profit of £5.4 million (2008: £4.9 million)
	Pre-tax profit of £5.1 million (2008: £5.0 million)
	Basic earnings per share of 32.1p (2008: 31.6p)
	Strong balance sheet - net cash increased to £7.9 million (2008: £5.9 million)
	Final dividend raised to 4.4p per share (2008: 4.0p)
	Outlook for 2010 in line with market expectations and significant organic growth expected in 2011

Divisional highlights:

	Chesterfield Special Cylinders:
	-	Substantial order book, containing significant higher added value defence contracts
	-	UK sales doubled
	-	Introduction of business units expected to deliver major benefits to Small Cylinders
	Chesterfield BioGas:
	-	Strong market profile
	-	Project quotations in hand of £10 million spread over three years
	-	Government announcement on Renewable Heat Incentive expected early in 2010

Richard Shacklady, Chairman of Pressure Technologies, said: "I am pleased to report that the Group has continued to thrive and progress its diversification strategy, despite the worst market and financial turbulence experienced for over 20 years.  

Our secure market position and strong balance sheet are enabling us to actively pursue relevant, realistically priced acquisition targets."

For further information, please contact:

Pressure Technologies plc John Hayward, Chief Executive James Lister, Group Finance Director	Today: 01653 618 016 Thereafter: 0114 242 7500 www.pressuretechnologies.co.uk
Rawlings Financial PR Limited Catriona Valentine Keeley Clarke	Tel: [phone] www.rawlingsfinancial.co.uk
Fairfax IS PLC  Nominated Adviser and Broker Simon Bennett Ewan Leggat	Tel: [phone]

Company description:

Pressure Technologies is the holding company for Chesterfield Special Cylinders Limited ("CSC"). CSC designs, manufactures and offers retesting and refurbishment services for a range of speciality high pressure, seamless steel gas cylinders for global energy and defence markets. The business has been conducted under the "Chesterfield" brand which is a long established name in the cylinders and specialised pressure vessel market.  

Chesterfield BioGas ("CBG"), an operating division of Pressure Technologies, formed in November 2008 following the signing of a co-operation agreement with Greenlane® Biogas Limited, the world leader in biogas upgrading from raw biogas to vehicle quality fuel, gives Pressure Technologies exclusive rights to market Greenlane® equipment in the UK and Eire. Chesterfield BioGas will provide turnkey solutions for the cleaning, storage and dispensing of biomethane, produced from waste water treatment and anaerobic digestion of organic waste.

CHAIRMAN'S STATEMENT

I am pleased to announce that the Group has achieved a commendable, solid set of full year results, despite the worst market and financial turbulence for over 20 years. The global economic crisis and domestic fiscal issues have, undoubtedly, affected the key markets in which we operate. These results reflect the inherent robustness of our business and strength of management.

Results

Revenue increased by over 10% to £26.2 million from £23.7 million in 2008. Operating profit, after one-off costs relating to the start up of Chesterfield BioGas (£0.3 million) and an IAS 39 exchange loss (£0.1million), improved marginally to £5.0 million, compared to £4.9 million in the previous year. Underlying operating profit increased to £5.4 million (2008: £4.9 million). Investment in new products and processes, which are expected to benefit the business in the medium term, was continued throughout the period. Further details of which are included in the Chief Executive's report.

Profit before taxation was £5.1 million (2008: £5.0 million), giving an improved basic earnings per share of 32.1p (2008: 31.6p).

Our sustained actions on working capital management, both inventories and debtors, are bearing fruit. Net cash increased by £2.0 million in the period under review to £7.9 million (2008: £5.9 million). We now have a very strong balance sheet from which to develop the business. 

In line with our stated intention to have a progressive dividend policy, the Board is proposing a final dividend of 4.4 pence per share (net), giving a total dividend for the year of 6.6 pence per share (net) - an increase of 10%. If approved, this dividend will be paid on 12 March 2010 to shareholders on the register at the close of business on 19 February 2010. The ex-dividend date will be 17 February 2010.

Strategy

Our Business Growth Strategy, which is kept under constant review, continues to be the penetration of select, key growth sectors, which offer synergies to our core business. We remain committed to the global energy markets, notably offshore oil and gas; particularly as the bulk of politically stable oil and gas reserves are located in deep water.  

Long term growth, amounting to double GDP rate, is expected in other high pressure gases markets and the Group is actively exploring niche product opportunities in these sectors.

Essential functions within the Group have been strengthened to support growth; Chesterfield Special Cylinders ("CSC") has been split into two separate product groups, Ultra-Large and Small Cylinders. This is expected to aid the development of both businesses, most particularly Small Cylinders.  

Our investment in and support of R&D continues, as the Board firmly believes organic development of new technologies is key to a successful future for the Group. To this end, a healthy product development programme is being maintained and this activity will be supported by selective acquisitions in growth markets.

Chesterfield BioGas ("CBG") has been highly active throughout the year and has created a strong profile in the biogas upgrade market. This is a proven renewable energy solution and CBG currently has project quotations in hand of £10 million, spreading over the next three years. A UK Government announcement on Renewable Heat Incentive ("RHI") is expected early in 2010. This will create a level playing field with other subsidised renewable energy solutions, such as Combined Heat and Power, and we are confident that we will secure firm orders following this announcement.

People

We have a Board which functions fully and in a proper manner with considerable effort being applied to the Group's key Committees and the development and implementation of Group strategy.

The Group continues to invest in its employees through structured training programmes and apprenticeship schemes. It is appropriate to acknowledge the commitment, skill and dedication of our Operational Directors and all our employees. Changes in the business have required increased flexibility from our employees both to support immediate customer demands and develop a strong base for future growth. Their efforts have produced a commendable result. 

I am pleased to report further public recognition of our Chief Executive's achievements. He was awarded the prestigious Gold Medal for Manufacturing Excellence by The Company of Cutlers in Hallamshire in July 2009. The Gold Medal has, over the years, only been awarded to a limited number of distinguished industrialists and entrepreneurs in South Yorkshire and Pressure Technologies is proud to report that John has had this honour bestowed upon him.

Prospects

In line with market expectations, demand from our largest market sector, oil and gas, is subdued in the short term and this is reflected in our year end order book of £16 million (2008: £23.7 million) - a level last recorded at the end of 2007. The Group's prospects in the medium to long term, however, remain strong in this market. We anticipate growth in new product areas in 2010 and expect the outlook to gradually improve with a return to strong organic growth in 2011. The current year is expected to be one of transition, in which we reshape the business to make it more diverse.

CBG has developed a high market profile over the last year and we are well positioned to benefit from the anticipated Government announcement on RHI, which is expected early in 2010.  

As we pursue our diversification strategy, more realistically priced acquisition targets are beginning to emerge. The Board aims to capitalise on sensibly priced, niche product and service opportunities as they arise.  

The Board is ever confident in the Group's ability to adapt to market conditions and to create and exploit opportunities as they arise.  

Finally, I would like to thank the Group's shareholders for their continued support throughout the year. 

Richard Shacklady

Chairman

8 December 2009

CHIEF EXECUTIVE'S STATEMENT AND OPERATIONAL REVIEW

This was another good year for Pressure Technologies, made even more remarkable when set against the backdrop of financial turmoil engulfing world markets. At first sight, progress in our sales does not appear to have fed through to profits, as £270,000 of start up costs for Chesterfield BioGas mask the gains in Chesterfield Special Cylinders. The key points for the year are:

Chesterfield Special Cylinders ("CSC")

Markets

In our main market, the Oil and Gas sector, a record order intake over the last quarter of 2008 and first quarter of 2009 set us up for a good year. We saw no cancellations as the projects we supplied to were fully funded. Oil price dips in the year had a short-term effect on ordering patterns and protectionism in South East Asia also had an impact but these came too late to have any impact on 2009. As outlined in our interim statement, these factors will have an effect in 2010. The announcement by Petrobras of 28 projects for semi-submersible rigs and drillships for delivery over the next four years and the range of quotation activity in which we are engaged, however, suggest that the deep-water market will rebound strongly towards the end of 2010 and into 2011. Other sectors of this market, including diving support and emergency systems, were resilient and remain strong into 2010 and we are receiving some orders for replacement cylinders, as the first generation semi-submersibles rigs and drillships begin to come in for major overhaul.

The broad spread of projects in the naval defence sector continued. This extends into 2010 and there is also a strong pipeline of opportunities for future years. Our strong defence order book for 2010 is key to underpinning our level of profitability.

Across other Ultra-Large Cylinder product markets, increases and decreases in activity in the year cancelled each other out.

The market for aircraft cylinders proved surprisingly resilient with reductions in orders for the executive jet market being offset by increases in defence markets. Aircraft cylinder retest also remained at 2008 levels.

Our trailer refurbishment business continued to grow in line with expectations. The challenge in 2010 is to extend our customer base in this market. 

A business manager for Small Cylinders was appointed in March 2009. A business plan was presented to and accepted by the Board in July 2009. This part of our business is currently small and, therefore, not reported as a separate segment. However, it has significant growth potential. The key areas of growth potential identified in this plan were extending aircraft cylinder retest into the civil aviation market and the manufacture of composite aircraft cylinders with revenue streams forecast to begin in 2010 for retest and 2011 for manufacturing of composites. The two parts of the CSC business, Ultra-Large and Small Cylinder, now have their own sales teams and, just before our year end, we recruited two additional staff, one per business, to increase our selling activity.

It was pleasing to note that we had considerable sales growth in the UK during the year where sales doubled from £2.8 million to £5.6 million due to growth in a number of product sectors. 

Operations

The level of orders and an increasing complexity of customer requirements made 2009 an exceptionally busy year in manufacturing. The nature of the business is such that there are large swings in despatches from month to month, as a result of the project-based nature of our order book. We improved our management of this issue significantly and, through improvements to work-flow, were able to reduce manufacturing headcount from 52 to 45 in the year.

Our inventiveness was challenged by a change to the cleanliness requirements for air pressure vessels for motion compensation systems. One customer required us to move from a cylinder standard to a hydraulic system standard of cleanliness. Not only did we achieve this but we designed and installed a workable system inside two weeks, much to the customer's delight and well ahead of our competitors. 

Across all areas of the business, we are very good at managing the big issues and at problem solving and innovation. There is, however, significant room for improvement on our management of detail, which we are tackling through a number of initiatives.

As part of managing the detail, a major exercise was carried out on the management of inventory levels in the business. We involved our largest suppliers in this exercise, as a number of the major issues were supplier delivery. Against a target of £5 million, our year end inventories were reduced to £4.7 million from £6.5 million in 2008. Just as importantly, the exercise led to a better understanding of the supply chain, which will allow us to shorten order lead times.

Technical and Development

Our technical and development capability has long been recognised as an order winner for the business. Increasingly complex customer requirements, new product development and reviews of international standards have significantly increased work load. As a result of this, we have strengthened both the Design and Quality Assurance functions during the year.

Major projects undertaken in the year included:

	a research project with Sheffield University on corrosion rates for different grades of steel used in naval cylinders. This has proved invaluable in re-establishing our NES design as the preferred design for UK naval use and is a very useful tool for discussing designs with foreign shipbuilders;
	playing a leading role in developing an ISO standard for Ultra-Large seamless composite cylinders and reviewing the standard Ultra-Large Cylinder ISO standard;
	redesigning our forge tooling to reduce manufacturing time for which our chief designer was awarded an MSc;
	producing a prototype light weight Ultra-Large composite cylinder as a proof of concept;
	developing the cleaning process mentioned above under Operations;
	obtaining certification to supply to Russian standards; and
	the design and manufacture of a biomethane buffer storage cascade and CNG trailer designs for Chesterfield BioGas.

Our major focus in the coming year will be on the further development of composite cylinders, both for the Ultra-Large business and the Small Cylinder business, and gaining CAA approvals to allow entry into the civil aviation retest market. 

Chesterfield BioGas ("CBG")

This division was set up in November 2008 to manufacture and sell biogas upgrading (cleaning) equipment and associated storage and vehicle refuelling equipment in the UK and Eire. A co-operation agreement was signed with Greenlane® Biogas the world leader in biogas upgrading, which subsequently led to the signing of a five year exclusive licence to manufacture and supply Greenlane® equipment in March 2009.

Biogas is the product of anaerobic digestion of organic waste and typically contains 60% methane and 40% carbon dioxide. The upgrading equipment purifies the biogas to give 98% pure methane. This methane is referred to as biomethane and can be used as a vehicle fuel or injected into the natural gas grid for domestic or industrial use. The most efficient use of the biomethane is to inject into the gas grid but biomethane is also a very clean vehicle fuel, emitting very low levels of particulates in comparison to diesel. Diesel particulates are a major contributor to lung diseases and asthma. Cleaner fuel is of considerable interest to councils and we are in discussion with three councils to design, manufacture and supply storage and dispensing equipment.  

Biogas upgrade technology is widely used in Europe but, to date, the market for biomethane in the UK has not yet been exploited. A number of factors have delayed uptake; firstly, until very recently, there was limited availability of methane fuelled right-hand drive vehicles and no filling infrastructure; secondly, technical issues regarding levels of trace gases in the biomethane have prevented injection to the grid; thirdly, and most importantly, subsidies are not yet available for injection into the gas grid and the technology cannot, therefore, compete financially against heavily subsidised combined heat and power plants ("CHP").

Dealing with each of these factors in turn; vehicles are now available from several OEMs; relaxation of gas composition to European norms is actively being pursued by several major utilities and the National Grid appear committed to achieving this; a specific subsidy, the Renewable Heat Incentive ("RHI"), is being devised by Government. Indications are that this will be announced in January 2010 for introduction from April 2011. Market intelligence suggests that this will be set at a level to stimulate investment. 

Costs incurred in this division during the year were mainly related to marketing and sales activities. We sponsored several events and have created a strong profile in the market. Total potential sales of over £10 million have been quoted, covering a three year time horizon and we are firmly of the opinion that we will start receiving orders following the announcement of the RHI.

Acquisitions

In March 2009, we appointed a Corporate Development Manager to work full-time on our search for good acquisition opportunities. Business valuations are now becoming more realistic and our strong cash balances put us in an excellent position to complete mid-sized acquisitions in a market where bank debt is difficult to obtain. We have a clearly defined shortlist of targets and are pursuing these with vigour.

In conclusion, 2009 was a year of solid growth in CSC and preparation in CBG. Next year will be tough but we have the right people and resources to move the Group forward and expect the Group to perform in line with market expectations.

John Hayward

Chief Executive

8 December 2009

Consolidated income statement

For the period ended 3 October 2009

		Notes	53 weeks ending 3 October 2009	52 weeks ending 27 September 2008
			£'000	£'000
Revenue			26,186	23,660
Cost of sales			(17,899)	(16,150)
Gross profit			8,287	7,510
Administration expenses			(3,315)	(2,578)
Operating profit			4,972	4,932
Finance income			94	155
Finance costs			(13)	(41)
Profit before taxation			5,053	5,046
Taxation		2	(1,414)	(1,465)
Profit for the financial period			3,639	3,581
Earnings per share	-basic	3	32.1p	31.6p
	-diluted	3	32.0p	31.5p

All the above results are from continuing operations.

Consolidated balance sheet

As at 3 October 2009

	Notes	2009	2008
		£'000	£'000
Non-current assets
Intangible assets		380	-
Property, plant and equipment		2,195	2,043
Deferred tax asset		92	76
		2,667	2,119
Current assets
Inventories		4,722	6,527
Trade and other receivables		4,337	3,125
Derivative financial instruments		4	110
Cash and cash equivalents		8,046	6,091
		17,109	15,853
Total assets		19,776	17,972
Current liabilities
Trade and other payables		(3,841)	(4,731)
Borrowings		(80)	(80)
Current tax liabilities		(740)	(846)
		(4,661)	(5,657)
Non-current liabilities
Other payables		(643)	(695)
Borrowings		(80)	(160)
Deferred tax liabilities		(278)	(293)
		(1,001)	(1,148)
Total liabilities		(5,662)	(6,805)
Net assets		14,114	11,167
Equity
Share capital	5	567	567
Share premium account	5	5,341	5,341
Retained earnings	5	8,206	5,259
Total equity	5	14,114	11,167

Consolidated cash flow statement

For the period ended 3 October 2009

	Note	53 weeks ending 3 October 2009	52 weeks ending 27 September 2008
		£'000	£'000
Operating activities
Cash flows from operating activities	6	5,113	2,881
Finance costs paid		(13)	(41)
Income tax paid		(1,544)	(977)
Net cash inflow from operating activities		3,556	1,863
Investing activities
Interest received		94	155
Purchase of property, plant and equipment		(382)	(551)
Purchase of intangible assets		(400)	-
Proceeds from sale of property, plant and equipment		-	101
Net cash used in investing activities		(688)	(295)
Financing activities
Repayment of borrowings Dividends paid		(80) (703)	(80) (227)
Payment of deferred consideration		(130)	(100)
Net cash outflow from financing activities		(913)	(407)
Net increase in cash and cash equivalents		1,955	1,161
Cash and cash equivalents at beginning of period		6,091	4,930
Cash and cash equivalents at end of period		8,046	6,091

Notes

1.  Accounting policies

Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and IFRIC interpretations issued by the International Accounting Standards Board and the Companies Act 2006. 

The Group has applied all accounting standards and interpretations issued relevant to its operations for the period ending 3 October 2009. The consolidated financial statements have been prepared on a going concern basis.

The financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are carried at fair value. 

There are a number of standards and interpretations issued by the International Accounting Standards Board that are effective for financial statements after this reporting period. These standards will be first effective for the Group in its 2009/10 financial year:

IAS 1 Presentation of Financial Statements (Revised 2007) 

IAS 23 Borrowing Costs (Revised 2007) 

IAS 27 Consolidated and Separate Financial Statements (Revised 2008) 

IAS 32 Financial Instruments (Amendment 2007)

IFRS 2 Share-based Payment (Revised 2008)

IFRS 3 Business Combinations (Revised 2008) 

IFRS 8 Operating Segments 

The application of these standards and interpretations is not expected to have a material impact on the Group's reported financial performance or position. However they may give rise to additional disclosures being made in the financial statements.

2. Taxation

			2009	2008
			£'000	£'000
Current tax
Current tax expense			1,445	1,461
				-
Deferred tax
Origination and reversal of temporary differences			(31)	(4)
Adjustment in respect of prior years			-	8
Total taxation charge			1,414	1,465

Corporation tax is calculated at 28% (2008: 28%) of the estimated assessable profit for the period.

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

	2009 £'000	2008 £'000
Profit before taxation	5,053	5,046
Theoretical tax at UK corporation tax rate 28% (2008: 28%)	1,415	1,413
Effects of:
- non-deductible expenses	6	4
- adjustments in respect of prior years - deferred tax	-	8
- effect of rate change	-	50
- small companies and marginal relief	(7)	(10)
Total taxation charge	1,414	1,465

3. Earnings per ordinary share

Basic and diluted earnings per share have been calculated in accordance with IAS 33, which requires that earnings should be 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 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. 

	2009 £'000	2008 £'000
Profit after tax	3,639	3,581
	No.	No.
Weighted average number of shares - basic	11,333,620	11,333,620
Dilutive effect of share options	51,455	47,958
Weighted average number of shares - diluted	11,385,075	11,381,578
Basic earnings per share	32.1p	31.6p
Diluted earnings per share	32.0p	31.5p

4. Dividends

The following dividend payments have been made on the Ordinary 5p Shares in issue:

	Rate	Date	Shares in issue	2009	2008
				£'000	£'000
Interim 2007/08	2.0p	12 August 2008	11,333,620	-	227
Final 2007/08	4.0p	12 March 2009	11,333,620	453	-
Interim 2008/09	2.2p	10 August 2009	11,333,620	250	-
				703	227

At 3 October 2009, the 2008/09 final dividend had not been approved by shareholders and consequently this has not been included as a liability. The proposed dividend of 4.4p per share (net) is expected to be paid on 12 March 2010.

5. Statement of changes in equity

		Share capital account £'000	Share premium account £'000	Retained earnings £'000	Total £'000
Balance at 1 October 2007		567	5,341	1,887	7,795
Profit for the period		-	-	3,581	3,581
Dividends paid		-	-	(227)	(227)
Share based payments		-	-	17	17
Tax taken directly to equity		-	-	1	1
At 27 September 2008		567	5,341	5,259	11,167
Profit for the period		-	-	3,639	3,639
Dividends paid		-	-	(703)	(703)
Share based payments		-	-	11	11
At 3 October 2009		567	5,341	8,206	14,114

6. Cash flows from operating activities

	2009	2008
	£'000	£'000
Profit after tax	3,639	3,581
Adjustments for:
Finance income - net	(81)	(114)
Depreciation of property, plant and equipment	230	200
Amortisation of intangible assets	20	-
Profit on sale of property, plant and equipment	-	(19)
Share option costs	11	17
Income tax expense	1,414	1,465
Gain / (loss) on derivative financial instruments	106	(32)
Gain on early settlement of deferred consideration	(20)	-
Changes in working capital:
Decrease / (increase) in inventories	1,805	(1,977)
(Increase) / decrease in trade and other receivables	(1,212)	30
Decrease in trade and other payables	(799)	(270)
Cash flows from operating activities	5,113	2,881

7. Notice of Annual General Meeting

The Annual General Meeting of the Company will be held at Pressure Technologies plc, Meadowhall Road, Sheffield S9 1BT on Wednesday 10 February 2009 at 10.30 am.

8. Preliminary statement

The financial information set out in the preliminary announcement does not constitute statutory accounts as defined by section 434 of the Companies Act 2006. The financial information for the period ended 3 October 2009 has been extracted from the Group's financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006. 

The statutory accounts for the period ended 3 October 2009 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website www.pressuretechnologies.co.uk and delivered to the Registrar of Companies. The statutory accounts for the period ended 27 September 2008 have been delivered to the Registrar of Companies.

 

END

 

 

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