Preliminary Results 2010

RNS Number : 4693X

Pressure Technologies PLC

07 December 2010

 



PRELIMINARY RESULTS 2010

Pressure Technologies plc ("Pressure Technologies" or the "Group") is pleased to announce its preliminary results for the full year ended 2 October 2010.

Financials:

·      Revenue at £21.7 million (2009: £26.2 million)

·      Operating profit at £3.5 million (2009: 5.0 million)

·      Pre-tax profit £3.5 million (2009: £5.1 million)

·      Basic earnings per share 22.3p (2009: 32.1p)

·      Year end net cash, after acquisition of Al-Met, £6.5 million (2009: £7.9 million)

·      Final dividend of 4.8p per share, giving a total dividend increased to 7.2p (2009: 6.6p)

Key points:

·      Transformation of Group through strategic diversification programme well underway with acquisition of Al-Met and, post year end, Hydratron

·      Chesterfield BioGas successfully completed the first UK biogas to grid project

·      Operating management and engineering resources strengthened and capital investment and research and development continues as we invest for the future

·      The global economic downturn impacted 2010 sales and profits

·      Chesterfield Special Cylinders anticipating a difficult first half of 2011 with recovery of deepwater oil and gas markets delayed by the  BP Macondo oil spill but signs of upturn in orders for the second half year

·      Acquisitions and Chesterfield BioGas expected to show growth in 2011

·      Balance sheet remains strong

·      Operating cash flows and confidence in a medium term recovery support dividend

Richard Shacklady, Chairman of Pressure Technologies, said:   "Overall, we expect the coming six months to be the lowest point in the cycle in shipments to the deepwater offshore oil and gas sector.  All key indicators together with recent orders from the sector suggest that this will be followed by a gradual improvement in forward ordering for shipments in 2011/2012.  Activity in our Engineered Products Division is expected to continue growing strongly, as we pursue growth into buoyant market segments."

"The process of diversification, both organically and through strategic acquisition, is transforming the Group.  It will emerge better balanced, both in terms of products and markets, and the coming year will see this transformation take further shape.  We are seeing a flow of better quality acquisition candidates both in the UK and overseas.  Given our strong balance sheet and cash resources, we are well positioned to exploit opportunities as they arise and the Board intends to capitalise on those in niche markets."

"Our dividend policy wholly reflects the Board's confidence in the Group, its strategy and ability to flex with prevailing market conditions to secure leading positions in growth sectors of our chosen markets, as well as its confidence in the expected medium term recovery of the deepwater oil and gas business."

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 an AIM listed, leading designer and manufacturer of speciality engineering solutions for high pressure systems serving large global markets.

The Group's largest subsidiary, Chesterfield Special Cylinders Limited ("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 is conducted under the "Chesterfield" brand which is a long established name in the cylinders and specialised pressure vessel market.  

Chesterfield BioGas, 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.

In 2010, the Engineered Products Division was formed following the purchase of Al-Met Limited ("Al-Met") and the Hydratron group of companies ("Hydratron").

Al-Met is a niche manufacturer of specialised, precision engineered valve wear parts used in the oil and gas industries, which was acquired by Pressure Technologies in February 2010.  Itsproducts are used in high-pressure choke and flow control valves, designed to regulate flow volumes in extremely demanding applications in the subsea and surface oil and gas industries.  The business, which was established in 1985, has developed a leading edge capability in precision machining carbides, high grade stainless steels and super alloys. 

Hydratron acquired on 15 October 2010, designs, manufactures and sells a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs.  Hydratron has sales and manufacturing companies in Altrincham, UK, and Houston, USA and a spread of third party distributors in key locations around the world.    Formed in 1981, Hydratron has since established itself as a leading supplier of quality high pressure equipment to the oil and gas industries.  The full range of Hydratron products may be viewed at www.hydratron.co.uk.

CHAIRMAN'S STATEMENT

The Group has produced a solid set of results for the period, despite the severe downturn across our main market sectors.  The general economic downturn, which began to affect the business in 2009, was compounded by the BP Macondo oil spill in the Gulf of Mexico.  This had a massive impact on the offshore deepwater oil and gas sector and, undoubtedly, set back the recovery in deepwater drilling investment activity by approximately 12 months.  I am pleased to report, however, that we are now seeing clear signs of renewed activity in the sector.

Whilst the offshore deepwater oil and gas market will continue to play a major role in the Group's future, I am pleased to report that we have made progress with our diversification strategy. Al-Met Limited ("Al-Met") was successfully acquired in February 2010 and, following the year end, we announced the acquisition of Hydratron Limited ("Hydratron"), its subsidiary in the USA and marketing facility in Australasia.  Hydratron is a designer and manufacturer of high pressure measuring and control equipment, which supplies market leading OEMs in the process flow and oil and gas industries.  Al-Met and Hydratron combine to form our embryonic Engineered Products Division.  Chesterfield BioGas, our organically developed renewable energy division, delivered and commissioned its first biogas upgrade plant on schedule.  This plant is performing to expectation and is now pumping gas directly to the UK gas grid.  Further diversification activities are underway.

Results

Revenue for the year ended 2 October 2010 fell by 17% to £21.7 million from £26.2 million in 2009.  Operating profit reduced from £5.0 million in the previous year to £3.5 million.  We have continued to invest in new products and processes throughout the year which we believe will benefit the business over the medium and long term; the Chief Executive's Report details these programmes.

Profit before taxation was £3.5 million (2009: £5.1 million), giving basic earnings per share of 22.3p (2009: 32.1p).

A continued focus on working capital management is providing the Group with a strong balance sheet, allowing us to undertake and fund acquisitions and development programmes from cash flow. Debtor control is being negatively affected by European Government defence contractors delaying payment on shipments.  After acquiring Al-Met, net cash decreased by £1.4 million over the year but remains robust at £6.5 million (2009: £7.9 million).

Given our continued strong balance sheet and our confidence in the medium term prospects for the Group, the Board is proposing a final dividend of 4.8 pence per share, giving a total dividend for the year of 7.2 pence per share - a significant increase of 9%.  If approved, this dividend will be paid on 11 March 2011 to shareholders on the register at the close of business on 18 February 2011.  The ex-dividend date will be 16 February 2011.

Strategy

The Board has continued to update and review its Business Growth Strategy over the year under review.  The prime objective remains unaltered - to penetrate, by both acquisition and organic development, select growth sectors which offer synergies to our core business.  Despite the current setbacks in core markets, we remain committed to the global energy markets and, in particular, the deepwater offshore segment.  Through the acquisitions made thus far, we have broadened our participation in the oil and gas industry by becoming suppliers to the wellhead equipment segment.  This sector has rebounded from a low in 2009 and is now extremely active.  Oil prices sustained above $70 dollars per barrel are expected to lead to continued increase in activity in the oilfield equipment sector.

During the year, we strengthened our capability in the industrial gases markets and are now able to offer a complete outsource storage and transportation package to the major industrial gases producers.  This should result in increased penetration of the sector, including involvement in the hydrogen gas market which has significant potential as an alternative fuel.

The Group continues to prioritise and fund R&D programmes that will support future organic growth in the business.  As part of this organic development, we have increased our design engineering capability which is central to the development of new products and market offerings for both current and potential customers.  The Group is also funding an R&D programme with a US partner to develop composite material, high strength cylinders.

Chesterfield BioGas has been highly active, strengthening its profile in the biogas upgrade segment and also in the market for the transportation and dispensing of compressed natural gas ("CNG") as an alternative green fuel for road vehicles.  The first biogas upgrade plant was delivered and installed with nationwide media coverage.  Our first storage and dispensing equipment is also being successfully operated by municipal authorities.  The outstanding tender list at Chesterfield BioGas is over £10 million and our successful delivery of these first contracts gives grounds for real optimism in this sector, despite the Government delaying announcements on the Renewable Heat Incentive ("RHI").  The biogas upgrade market in Northern Europe, particularly in Germany and Scandinavia, remains very active and we believe that the UK will follow suit and use biogas to reduce the dependence on imported natural gas. 

We have significant firm contracts in the naval defence sector, which reach well into 2011.  Orders for the Royal Navy's Astute 5 submarine have now been booked.  Our expertise in this very demanding market sector is acknowledged globally and leaves the Group well placed to secure further business worldwide.

People

The Board and its committees play a key role in both corporate governance and the development and implementation of Group strategy.  All the Directors play a full role in these activities attending both regular and ad hoc meetings, as the situation demands.

The Group continues to invest in its employees through apprenticeships and structured training programmes.  It is, therefore, appropriate to acknowledge, once again, the dedication of our operational Directors and the skill and commitment exhibited by all our employees in striving for success.  Changes in the business have required increased flexibility from our employees to meet customer requirements, albeit that we have needed to reduce manning at the cylinder manufacturing business due to the reduced market demand.

Prospects

Whilst shipments to the deep water oil and gas sector are likely to remain subdued in the current financial year, there are clear indicators from our customers and leading OEMs that a recovery in activity is underway - primarily in the Brazilian and West African markets.  This will feed through to an increase in demand for new equipment as deepwater drilling increases. In this regard, we are beginning to see an upturn in orders.

In our Engineered Products Division, the order intake at Al-Met is accelerating and early indications from Hydratron confirm a similar upward trend.  There are further organic and acquisition opportunities within the oil and gas sector that we are currently assessing and we believe that increasing global energy demands will support growth in this large and complex market sector over the medium to long term.

Having secured and supplied its first orders, Chesterfield BioGas appears poised to enter the next phase of growth with further orders likely for both upgrading and storage/dispense equipment.

The process of diversification, both organically and through strategic acquisition, is transforming the Group.  It will emerge better balanced, both in terms of products and markets, and the coming year will see this transformation take further shape.  We are seeing a flow of better quality acquisition candidates both in the UK and overseas.  Given our strong balance sheet and cash resources, we are well positioned to exploit opportunities as they arise and the Board intends to capitalise on those in niche markets.

Our dividend policy reflects the Board's confidence in the Group, its strategy and ability to flex with prevailing market conditions to secure leading positions in growth sectors of our chosen markets, as well as its confidence in the medium term recovery of the deepwater oil and gas business.

Finally, in a year which brought about significant change in our shareholder base, I would like to thank all shareholders for their support.

Richard Shacklady

Chairman

7 December 2010

CHIEF EXECUTIVE'S STATEMENT

As anticipated last year, this was a tough year for Pressure Technologies in which the impact of global financial conditions finally hit the business.  Market conditions worsened further in the year for the Chesterfield Special Cylinders ("CSC") business as confidence in deepwater drilling was shaken by events in the Gulf of Mexico. There are signs of this market returning and whilst the order book in CSC was under £10 million at the year end, quotations and tenders were at an all time high, well in excess of £20 million. Our Chesterfield BioGas business had its first sales in the year and we completed a first acquisition in February and a second after the year end.  The key points for the year are:

Chesterfield Special Cylinders ("CSC")

Markets

A downturn in our largest market, Ultra-Large Cylinders for the oil and gas market had been anticipated as a result of the effects of the global recession. CSC supply into two sectors of this market, (i) air pressure vessels ("APVs") for deepwater oil rigs and drillships and (ii) support services.

Our main sector, APVs, was in line with our forecasts but 40% down on 2009.  Half of this was due to work lost in South Korea to a South Korean competitor and the balance was due to the general downturn in the market.  The sinking of the Deepwater Horizon in the Gulf of Mexico dented market confidence at a point when new orders, particularly for projects for Brazil, had been expected to materialise.  The second half order intake was severely affected by this and we exited the year with no orders for this market for 2011 but a significant amount of live projects at the tender stage for the Brazilian market.  Since the year end, two major orders have now been won in this market with delivery in 2011 and we are starting to see a pattern of potential orders through into 2012 at a rate of one project per quarter.  This is similar to what we experienced in the previous cycle of rig building and, if the same pattern is followed, we would expect to see projects brought forward as confidence returns to market.

The support services sector, which consists of Ultra-Large Cylinders for diving support, a range of other support vessels, cable laying equipment and cranes, was more heavily affected by the downturn than we had forecast and a number of projects for which we were confident of receiving orders in 2010 were either cancelled or postponed.  The positive news is that we have received orders for a number of small projects for 2011 delivery, so there are clear signs that this market is in recovery. The largest potential projects in this sector are still live but the timing of these is such that orders received in 2011 are unlikely to result in sales before 2012.  

The naval market has proved more robust and we successfully delivered the first batches of cylinders for France and Spain in 2010.  We won the contracts for Astute 5 and the UK aircraft carriers for delivery in 2011 and we have a number of enquiries for spares from the UK and overseas customers.

Across other Ultra-Large Cylinder product markets: there was a marked downturn in the new trailer market but this is expected to recover in 2011 and the level of quotations supports this; the market for "specials" remained about constant with a large hydrogen project for Scandinavia being the highlight of the year.

Our trailer refurbishment business continued to progress but the insolvency of one of our major subcontractors hit the last quarter's deliveries.  This gave us the opportunity to bring key management from the subcontractor in-house, allowing us to take better control of the supply chain.  

The Small Cylinder part of the business experienced some contraction in military aerospace orders but our new, dedicated sales team within this business obtained orders from 20 new customers in the year.  The second half of the year was focused on preparation for entering the civil aerospace retest market and, subject to obtaining CAA approval in the second quarter of 2011, we expect to enter this market in the second half of 2011.  Additionally, prototype type IV composite cylinders were exhibited at Aero Engineering 2010, which attracted significant interest from the aerospace industry and we look to progress this project in 2011.

The work done on developing technical standards for in-situ retest of cylinders (see below) has been followed up with discussions in the oil and gas support services sector and the UK industrial gases sector.  CSC is now actively promoting this service to our customer base and we anticipate our first contracts for this service will be obtained in 2011.

Operations

The management of CSC was reorganised in the summer.  A new general manager, Mick Pinder, was brought in to run the business on a day to day basis.  This move was made to allow me to concentrate on Group issues but I retain the role of executive Chairman of CSC.  The general manager has responsibility for sales and operations and, therefore, Philip Redfern, Sales and Marketing Director of CSC, has moved into a Group role as functional Director for Sales and Marketing and CSC Operations Director, John Brown, has become the functional Director of Engineering for the Group.

Following these changes, we have instituted a major relaunch of the "lean manufacturing" project in CSC.  This is aimed at delivering significant productivity improvements when production volumes recover.  Since the year end, we have reduced manufacturing headcount by 18% to 37 operatives from 45 due to the fall off in work giving a good base for delivery of this productivity gain.

Capital expenditure in CSC for the year totalled £643,000.  The major areas of investment were focused on the creation of an aerospace standard bay in the factory including a "clean room" for processing oxygen cylinders and valves, additional test facilities for naval cylinders and in-situ inspection and a replacement of the old computer servers with a modern VMS system.

In 2011, we will focus on the implementation of "lean manufacturing", capital expenditure will be concentrated on the improvement of process capability on the forge and hammers and there will be a constant drive on cost.

Technical and Development

The engineering complexity of our product offering continued to increase during the year and a further design engineer was added to deal with the increase in work arising from this and a general increase in tender activity in the second half of the financial year.  We continued with a number of development projects as part of the diversification strategy within CSC.

Major development projects in the year included:

·     continuation of the development of an ISO standard for Ultra-Large seamless composite cylinders and reviewing the standard Ultra-Large Cylinder ISO standard;

·     development of a British Standard for in-situ inspection of high pressure cylinders;

·     development of designs for the "next generation" of tube trailer for the UK market;

·     commencement of a development programme for type IV composite cylinders (composite liner with carbon fibre wrap) for the aerospace and Ultra-Large markets; and

·     development of a clean room facility for retest of civil aerospace cylinders and commencement of application for CAA approval for the facility.

All the above projects will continue into 2011.

Chesterfield BioGas

As our Chairman has set out, we achieved the distinction of providing the first equipment for cleaning biogas to produce biomethane for injection into the UK gas grid.  Whilst this is significant in terms of the start of a new industry in the UK, the slow progress in the development of this market is frustrating on several levels.  First and foremost, the absence of a confirmed incentive structure under the Renewable Heat Incentive ("RHI") to allow this technology to compete with Combined Heat and Power projects has been the main cause of the slow development of the market.  Secondly, the non-acceptance of the results of developments in Western Europe where this is now a relatively mature technology has been costly both in terms of money and time lost on pilot projects and unnecessary research.  There appears to be a suspicion in the UK that the laws of physics and chemistry change when you cross the English Channel. However, a number of large utilities are now interested in rapid expansion of the technology and we anticipate the trigger for this will be the publishing of the final version of the RHI expected in December 2010.  Planning and tender issues mean that substantial growth in this market will not occur before 2012.

The other major market for Chesterfield BioGas, vehicle fuelling systems, is expected to show progress in 2011.  In 2010, we supplied a refuelling skid to Sheffield council on a short-term lease as a proof of concept to demonstrate that CNG was a practical fuel for use by council fleets.  We already have an order for a CNG trailer based refuelling system for Greenwich council which will be delivered in December 2010 and further orders for refuelling systems for commercial vehicle operators are expected in the short-term.

During the year, we added a full-time project engineer to the Chesterfield BioGas team so that all design work can now be undertaken without drawing on CSC resources. The use of subcontractors has enabled us to meet current demands without adding significant fixed cost into the business.  These will be replaced by permanent staff when justified by the volume of work; we do not anticipate any problems in finding suitable people for the business.

In summary, 2010 was a major step forward for Chesterfield BioGas, 2011 is expected to show significant growth in orders won with 2012 showing the resulting growth in sales for this to become an established profitable business unit.

Engineered Products Division

The purchase of Al-Met in February 2010 and Hydratron shortly after the financial year end in October 2010 marks the formation of our Engineered Products Division.  This will be made up of specialist niche manufacturers of high pressure systems and components other than cylinder products.

Al-Met's products are used in high-pressure choke and flow control valves, designed to regulate flow volumes in extremely demanding applications in the subsea and surface oil and gas industries.  The business, which was established in 1985, has developed a leading edge capability in precision machining carbides and superalloy matrix materials.  The ability to combine high alloy steels with tungsten carbide inserts and specialised coatings gives Al-Met its niche position with its customers, global wellhead and subsea equipment OEMs.  Since acquiring the business, we have been positioning Al-Met for the anticipated recovery in this sector and, over the last quarter of the financial year, sales orders increased markedly giving a firm platform for growth in 2011.  Additional sales and accounting resource has been put into the business and a further salesman will be employed in 2011 to develop new customers.

Hydratron designs, manufactures and sells a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs.  The business was established in 1981 and it has established itself as a leading supplier of quality high pressure equipment to the oil and gas industries.  Immediately after acquisition, the business relocated into modern manufacturing premises in the UK and there is also a similarly modern facility in Houston, Texas.  Like Al-Met, Hydratron has seen significant growth in sales orders over recent months.

Hydratron brings a number of synergies to the Group.  Its fabrication expertise in the UK will be used to assemble biogas upgrade equipment for CBG.  There is sufficient space in the new factory for this and the available time as the operation is currently single shifted.  The Houston location will give sales support and a US based stock location for Al-Met.

Both businesses had annualised turnover around £4 million each in the year prior to acquisition.  With the current level of market growth they will materially contribute to Group results in 2011.

Acquisitions

2010 was a busy year for acquisitions with Al-Met purchased in February and the Hydratron deal nearing completion at the financial year end.  We are assessing other opportunities as we look to strengthen our position in engineered products to continue the diversification of the Group and reduce our reliance on Ultra-Large Cylinders and, more specifically, the deepwater oil rig market.  The speed of diversification must be accelerated to reduce the variability in profits if we are to realise long-term sustainable share price growth.

Outlook

In conclusion, 2010 was a tough year and the issues affecting CSC are expected to continue and worsen in the first half of 2011.  The good news is that orders are starting to flow again from the deepwater oil and gas market and we expect an improving trend in CSC from the second half of 2011.  Whilst the improving trend will be insufficient to bring performance back to 2010's level, this, allied to growth in our Engineered Products Division, the expected pick up in orders for Chesterfield BioGas and further possible acquisitions, gives a positive outlook for 2012 and beyond.

John Hayward

Chief Executive

7 December 2010

 

Consolidated statement of comprehensive income

For the period ended 2 October 2010

		52 weeks ending 2 October 2010	53 weeks ending 3 October 2009
		£'000	£'000
Revenue		21,714	26,186
Cost of sales		(13,854)	(17,899)
Gross profit		7,860	8,287
Administration expenses		(4,374)	(3,315)
Operating profit		3,486	4,972
Finance income		39	94
Finance costs		(19)	(13)
Profit before taxation		3,506	5,053
Taxation		(978)	(1,414)
Profit and total comprehensive income for the period attributable to the owners of the parent		2,528	3,639
Earnings per share -basic		22.3p	32.1p
-diluted		22.2p	32.0p

All the above results are from continuing operations.

 

Consolidated balance sheet

As at 2 October 2010

		2 October	3 October
		2010	2009
		£'000	£'000
Non-current assets
Goodwill		272	-
Intangible assets		543	380
Property, plant and equipment		3,745	2,195
Deferred tax asset		229	92
Trade and other receivables		321	-
		5,110	2,667
Current assets
Inventories		3,547	4,722
Trade and other receivables		6,601	4,337
Derivative financial instruments		-	4
Cash and cash equivalents		6,613	8,046
		16,761	17,109
Total assets		21,871	19,776
Current liabilities
Trade and other payables		(3,737)	(3,841)
Derivative financial instruments		(21)	-
Borrowings		(130)	(80)
Current tax liabilities		(721)	(740)
		(4,609)	(4,661)
Non-current liabilities
Other payables		(668)	(643)
Borrowings		(8)	(80)
Deferred tax liabilities		(679)	(278)
		(1,355)	(1,001)
Total liabilities		(5,964)	(5,662)
Net assets		15,907	14,114
Equity
Share capital		567	567
Share premium account		5,341	5,341
Retained earnings		9,999	8,206
Total equity		15,907	14,114

 

 

Consolidated statement of changes in equity

For the period ended 2 October 2010

 

	Share capital	Share premium account	Profit and loss account	Total equity
	£'000	£'000	£'000	£'000
Balance at 28 September 2008	567	5,341	5,259	11,167
Dividends	-	-	(703)	(703)
Share based payments	-	-	11	11
Transactions with owners	-	-	(692)	(692)
Profit and total comprehensive income for the period	-	-	3,639	3,639
Balance at 3 October 2009	567	5,341	8,206	14,114
Dividends	-	-	(771)	(771)
Share based payments	-	-	36	36
Transactions with owners	-	-	(735)	(735)
Profit and total comprehensive income for the period	-	-	2,528	2,528
Balance at 2 October 2010	567	5,341	9,999	15,907

 

Consolidated statement of cash flows

For the period ended 2 October 2010

		52 weeks ending 2 October 2010	53 weeks ending 3 October 2009
		£'000	£'000
Operating activities
Cash flows from operating activities		3,391	5,113
Finance costs paid		(19)	(13)
Income tax paid		(1,158)	(1,544)
Net cash inflow from operating activities		2,214	3,556
Investing activities
Interest received		39	94
Purchase of property, plant and equipment		(643)	(382)
Purchase of intangible assets		-	(400)
Purchase of subsidiary net of cash and cash equivalents		(2,010)	-
Net cash used in investing activities		(2,614)	(688)
Financing activities
Repayment of borrowings Dividends paid		(262) (771)	(80) (703)
Payment of deferred consideration		-	(130)
Net cash outflow from financing activities		(1,033)	(913)
Net (decrease) / increase in cash and cash equivalents		(1,433)	1,955
Cash and cash equivalents at beginning of period		8,046	6,091
Cash and cash equivalents at end of period		6,613	8,046

 

 

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 2 October 2010. 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.

Changes in accounting policies

The Group has adopted IAS1 'Presentation of Financial Statements (revised 2007)', which does not affect the financial position or profits of the Group, but gives rise to additional disclosures. IAS1 'Presentation of Financial Statements (revised 2007)' affects the presentation of owner changes in equity and introduces a 'Statement of Comprehensive Income'. In accordance with the new standard, a 'Statement of Recognised Income and Expense' is no longer required and a 'Statement of Changes in Equity' is presented.

IAS1 'Presentation of Financial Statements (revised 2007)' also requires presentation of a comparative statement of financial position as at the beginning of the first comparative period, in some circumstances.  The Directors do not consider that this is necessary as the 2009 consolidated balance sheet is the same as that previously published.

IFRS3 'Business Combinations' (revised 2008) has resulted in a number of changes to the way that business combinations are measured and accounted for. The most notable changes impacting the Group result in certain acquisition costs being recorded directly in the consolidated statement of comprehensive income. In addition, the difference between the actual and estimated amount of deferred consideration payable will now be recognised in the consolidated statement of comprehensive income rather than through goodwill. The Group has applied this new standard in accounting for the acquisition made during the period.

Under IFRS8 'Operating Segments', the Group has adopted a 'management approach' to reporting on its segments. Therefore, the information reported is that used by the chief operating decision maker for internally evaluating segment performance and deciding how to allocate resources to operating segments.  Following the adoption of IFRS 8, which required retrospective application, the comparative segment information has been restated to comply with the new requirements. In the prior period, the Group only reported on one segment as no other segment represented more than 10% of revenue, as permitted by IAS14.

The amendments to IFRS2 'Share Based Payments vesting conditions and cancellations' requires that entities re-estimate the grant date fair value of certain share based payments where those share based payments contain conditions for vesting which do not qualify as service or performance conditions, such as a requirement for the employee to save towards the exercise price of the share option in a save as you earn scheme. The possibility of this condition failing to be met is taken into account when estimating the grant date fair value of the investment granted.

2.  Segmental analysis

 

The financial information by segment detailed below is frequently reviewed by the Chief Executive.

For the period ended 2 October 2010

	Cylinders	Engineered products	Alternative energy	Unallocated amounts*	Total
	£'000	£'000	£'000	£'000	£'000
Revenue
-  from external customers	18,976	2,034	704	-	21,714
- from other segments	118	-	-	(118)	-
Segment revenues	19,094	2,034	704	(118)	21,714
Operating profit / (loss) before amortisation of intangible assets	4,753	(20)	(228)	(814)	3,691
Amortisation of intangible assets	-	(125)	(80)	-	(205)
Operating profit / (loss)	4,753	(145)	(308)	(814)	3,486
Net finance costs	(3)	(8)	-	31	20
Profit / (loss) before tax	4,750	(153)	(308)	(783)	3,506
Segmental assets	11,734	3,375	1,341	5,421	21,871
Other segment information:
Capital expenditure	525	-	118	-	643
Depreciation	186	115	14	-	315

 

Period ended 3 October 2009

	Cylinders	Engineered products	Alternative energy	Unallocated amounts*	Total
	£'000	£'000	£'000	£'000	£'000
Revenue
- from external customers	26,186	-	-	-	26,186
- from other segments	-	-	-	-	-
Segment revenues	26,186	-	-	-	26,186
Operating profit / (loss) before amortisation of intangible assets	5,808	-	(269)	(547)	4,992
Amortisation of intangible assets	-	-	(20)	-	(20)
Operating profit / (loss)	5,808	-	(289)	(547)	4,972
Net finance costs	7	-	-	74	81
Profit / (loss) before tax	5,815	-	(289)	(473)	5,053
Segmental assets	12,516	-	380	6,880	19,776
Other segment information:
Capital expenditure	382	-	-	-	382
Depreciation	230	-	-	-	230

 

*Unallocated amounts include central costs, central assets and unallocated consolidation adjustments.

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

Revenue	2010	2009
	£'000	£'000
United Kingdom	3,112	5,571
Europe	5,363	894
Rest of the World	13,239	19,721
	21,714	26,186

 

The Group's largest customer contributed 47% to the Group's revenue (2009: 52%). No other customer contributed more than 10% (2009: the second largest customer contributed 20% to the Group's revenue). Revenue from both customers is reported within the cylinders segment.

The carrying amount of segment assets and additions to property, plant and equipment and intangible assets have not been analysed separately by location, as they are all located in the United Kingdom.

3.  Taxation

	2010	2009
	£'000	£'000
Current tax
Current tax expense	1,007	1,445
Deferred tax
Origination and reversal of temporary differences	(29)	(31)
Total taxation charge	978	1,414

Corporation tax is calculated at 28% (2009: 28%) of the estimated assessable profit for the period.

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

	2010 £'000	2009 £'000
Profit before taxation	3,506	5,053
Theoretical tax at UK corporation tax rate 28% (2009: 28%)	982	1,415
Effects of:
- non-deductible expenses	23	6
- adjustments in respect of prior years	(29)	-
- small companies and marginal relief	-	(7)
- carry back of losses	2	-
Total taxation charge	978	1,414

 

4.  Earnings per ordinary share

Basic and diluted earnings per share have been calculated in accordance with IAS33, 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.

	2010 £'000	2009 £'000
Profit after tax	2,528	3,639
	No.	No.
Weighted average number of shares - basic	11,333,620	11,333,620
Dilutive effect of share options	74,633	51,455
Weighted average number of shares - diluted	11,408,253	11,385,075
Basic earnings per share	22.3p	32.1p
Diluted earnings per share	22.2p	32.0p

 

5.  Dividends

 

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

 

	Rate	Date	Shares in issue	2010	2009
				£'000	£'000
Final 2007/08	4.0p	12 March 2009	11,333,620	-	453
Interim 2008/09	2.2p	10 August 2009	11,333,620	-	250
Final 2008/09	4.4p	12 March 2010	11,333,620	499	-
Interim 2009/10	2.4p	10 August 2010	11,333,620	272	-
				771	703

 

At 2 October 2010, the 2009/10 final dividend had not been approved by Shareholders and consequently this has not been included as a liability. The proposed dividend of 4.8p per share is expected to be paid on 11 March 2011 at a total cost of £544,000.

 

6.  Cash flows from operating activities

 

	2010	2009
	£'000	£'000
Profit after tax	2,528	3,639
Adjustments for:
Finance income - net	(20)	(81)
Depreciation of property, plant and equipment	315	230
Amortisation of intangible assets	205	20
Share option costs	36	11
Income tax expense	978	1,414
Loss on derivative financial instruments	25	106
Gain on early settlement of deferred consideration	-	(20)
Changes in working capital:
Decrease in inventories	1,443	1,805
Increase in trade and other receivables	(1,673)	(1,212)
Decrease in trade and other payables	(446)	(799)
Cash flows from operating activities	3,391	5,113

 

7.  Acquisition of Al-Met Limited

 

On 5 February 2010, the Group acquired 100% of the issued share capital of Al-Met Limited for a maximum cash consideration of £2.25 million.  Al-Met Limited manufactures precision engineered valve components. The transaction has been accounted for by the acquisition method of accounting.

	Book value	Revaluation of property, plant and equipment	Intangible assets recognised on acquisition	Fair value
	£'000	£'000	£'000	£'000
Net assets acquired:
Property, plant and equipment	415	807	-	1,222
Intangibles	-	-	368	368
Inventories	268	-	-	268
Trade and other receivables	912	-	-	912
Cash and cash equivalents	240	-	-	240
Borrowings	(240)	-	-	(240)
Trade and other payables	(367)	-	-	(367)
Current tax liabilities	(132)	-	-	(132)
Deferred tax assets / (liabilities)	36	(226)	(103)	(293)
	1,132	581	265	1,978
Goodwill				272
Total consideration				2,250
Satisfied by:
Cash				2,000
Deferred contingent cash consideration				250
				2,250
Net cash outflow arising on acquisition
Cash consideration				2,250
Cash and cash equivalents acquired				(240)
				2,010

 

Acquisition related costs of £66,000 were incurred in the year. These have been recognised in the consolidated statement of comprehensive income.

The intangible assets acquired with the business comprise £261,000 for non-contractual customer relationships and £107,000 for the order book.

The goodwill arising on the acquisition of Al-Met Limited is mainly attributable to the skills and talent of the workforce and the anticipated value of the new business that the operation is capable of securing.

The deferred contingent cash consideration of £250,000 is payable if orders received by Al-Met Limited in calendar year 2010 exceed £4,000,000. The amount is held in an escrow account independent from the Group. Based on information available, the Directors do not believe that this amount will be repaid to the Group.

 

8.  Acquisition of Hydratron Limited

 

On 15 October 2010, the Group acquired 100% of the issued share capital of Hydratron Limited ('Hydratron').

The Hydratron Group of companies designs, manufactures and sells a range of air operated high pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs. It has operations in the UK, US and Australia, together with distribution outlets in key locations around the world.

The Directors believe the acquisition provides good growth prospects and diversifies the Group's activities. An initial cash payment of £2.5 million was paid on completion. This will be followed by two deferred payments of £400,000 to be paid in October 2011 and August 2012.

The exercise to identify and measure the fair value of the net assets acquired is currently in progress and consequently no such information is disclosed.

In its last financial statements for the year ended 30 April 2010 (unaudited), the Hydratron Group reported revenues of £4 million. Net assets of the Group were in the region of £1.1 million and profit before tax was £0.3 million.

9.  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 Thursday, 11 February 2010 at 10.30 am.

10. 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 2 October 2010 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 2 October 2010 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 3 October 2009 have been delivered to the Registrar of Companies.

 

END

 

 

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