Preliminary Results

RNS Number : 1154X

Pressure Technologies PLC

17 December 2019

 

17 December 2019

Pressure Technologies plc

("Pressure Technologies" or the "Group")

2019 Preliminary Results

Pressure Technologies (AIM: PRES), the specialist engineering group, announces its preliminary results for the year ended 28 September 2019.  

Financial Results^*

●	Group revenue up 34% to £28.3 million (2018: £21.2 million)
●	Gross profit up 27% to £9.2m (2018: £7.2 million)
●	Adjusted operating profit more than doubled to £2.2 million (2018: £1.0 million)
●	Reported loss before tax of £0.5 million (2018: loss £1.7 million)
●	Adjusted earnings per share of 7.8p (2018:  2.9p)
●	Reported basic loss per share of (2.1)p (2018: (7.5)p)
●	Adjusted net operating cash inflow** £2.0 million (2018: £1.9 million)
●	Net debt of £11.4 million (2018: £6.7 million)
●	Operating cash outflow from discontinued operations of £2.5 million
●	Working capital increased by £2.2 million to £7.4 million (2018: £5.2 million)

* continuing operations only excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits

** before cash outflow for exceptional costs

Operational Highlights

●	Improved trading performance and operating results in line with market expectations, driven by UK and export defence contracts and increasing momentum in the global oil and gas market
●	Strategic progress made with the divestment of non-core operations, recovery of profitability and organic growth in both divisions
●	Integration of Precision Machined Components (PMC) subsidiary companies completed, with operational improvements made across the division demonstrating scalability and growth, with margins improved since year end
●	Order backlog in PMC took longer to clear than anticipated, leading to an increase in working capital during the year.  Working capital is expected to unwind with improving cash flows during the first half of 2020 as operational changes take effect and the backlog of overdue orders is delivered
●	PMC order intake for the year to November 2019 reached the highest level for over five years, with record contract awards contributing to a divisional order book 70% higher than a year ago.  Revenues from new customers represented 11% of the divisional total in 2019, demonstrating progress in reducing customer concentrations
●	Strong and increasingly diverse order book in Chesterfield Special Cylinders (CSC), following the largest ever non-defence contract award from EDF Energy and further orders secured in the emerging hydrogen energy market since year end
●	Outlook for CSC in established UK and export defence programmes remains strong and further growth is forecast in recurring revenue from through-life Integrity Management services.

Chris Walters, Chief Executive of Pressure Technologies, said: 

"I am pleased with the significant improvement in trading performance this year.  We have made important management and operational changes within the business over the course of the year. I am pleased with the way our teams have responded during this transitional period and encouraged by the progress we have made with organisational development and culture that is key to delivering sustainable growth. 

Order backlog and delayed output increased working capital during the year, but I am confident that this will unwind early in the new year as the backlog is cleared and operational initiatives take effect, delivering shorter lead times, improved margins and recovering cash flows.

Good strategic progress and the favourable conditions in core markets underpin our confidence in the outlook for 2020 and beyond.  Both divisions hold strong order books with reduced customer concentrations and have recently posted record contract wins from an increasingly diverse and buoyant sales pipeline."

For further information, please contact:

Pressure Technologies plc	Tel: [phone]
Chris Walters, Chief Executive	[e-mail]
Joanna Allen, Chief Financial Officer
N+1 Singer (Nomad and Broker)	Tel: [phone]
Mark Taylor / Lauren Kettle
IFC Advisory Ltd (Financial PR and IR)	Tel: [phone]
Graham Herring / Tim Metcalfe / Zach Cohen

COMPANY DESCRIPTION

Company description - www.pressuretechnologies.com

With its head office in Sheffield, the Pressure Technologies Group was founded on its leading market position as a designer and manufacturer of high-integrity, safety-critical components and systems serving global supply chains in oil and gas, defence, industrial gases and hydrogen energy markets.

The Group has two divisions, Precision Machined Components and Chesterfield Special Cylinders.

Precision Machined Components (PMC) - www.pt-pmc.com

·	Precision Machined Components includes the Al-Met, Roota Engineering, Quadscot and Martract brands.

Chesterfield Special Cylinders (CSC) - www.chesterfieldcylinders.com

·	Chesterfield Special Cylinders, Sheffield, includes CSC Deutschland Gmbh, which is based in Dorsten, Germany.

CHAIRMAN'S STATEMENT

Overview

Good progress has been made in both divisions with positive market conditions prevailing and, whilst 2019 had its challenges, I am pleased to report substantially improved trading results.

Many steps have been taken to prepare the business for the improving conditions in our core markets.  As momentum builds in the oil and gas industry and our presence grows further in global defence markets and the emerging hydrogen energy sector, we have strengthened and diversified our order book and have a clearer view of our customers' project pipeline today than at any point in the past five years.

The strategy review undertaken during the first half of the year confirmed focus on organic growth opportunities and I am pleased with the progress made in this phase of executing the strategy.

As reported at the interim results, we were pleased to complete in June the sale of our Alternative Energy division to Vancouver-based Creation Capital Corporation LLC, now renamed Greenlane Renewables Inc. This strategic divestment gives the Group a clear focus on the growth and development of its core specialist engineering activities. 

In the remaining Group businesses, key initiatives covering sales effectiveness, production planning and efficiency, engineering processes and supply chain management are expected to drive the delivery of organic revenue growth and margin improvement, which is a key priority in the second phase of our strategy. 

Results

Overall Group revenue increased by 34% to £28.3 million (2018: £21.2 million) and the adjusted operating profit for the period increased to £2.2 million (2018: £1.0 million).  This improvement represents an increase in return on revenue to 8% (2018: 5%) and reflects, in particular, the strength of UK and overseas defence projects in our Chesterfield Special Cylinders division (CSC). 

Favourable conditions in the oil and gas market have driven higher revenue and profitability in our Precision Machined Components (PMC) division this year and the order book is at the highest level for five years.  However, operational improvements have been slower to come through than we had planned, impacting performance through the second half.  The changes made over the past year have been fundamental to building a stronger and more scalable base for PMC that will help us realise the potential for growth.

It remains a priority to reduce the overall leverage of the Group, whilst supporting the business with the capital investment programme and achieving a minimum 20% headroom in our facility covenants.  The Group's Revolving Credit Facility (RCF) was renegotiated in September and the new facility was fully documented and signed post year end on 10 December 2019. 

The Board has again resolved that no dividend shall be paid to shareholders this year as investment in the organic growth strategy remains the priority for capitalising on the improving market conditions.

In November we announced that a trial had commenced in respect of the prosecution by the Health & Safety Executive (HSE) following the fatal accident at CSC in June 2015.  At the conclusion of the trial, in late November, the jury delivered a guilty verdict pursuant to Section 2 of the Health and Safety at Work Act 1974 and we await the sentencing hearing which is now expected to take place in the New Year.  The outcome of the sentencing hearing is uncertain and whilst the range of possible outcomes is significant, the Directors are satisfied that the Group can continue to prepare its financial statements on a going concern basis.  Further details are in Note 11 of this preliminary announcement.

People

We have recently received the results from our second people engagement survey undertaken with 'Best Companies'.  This shows encouraging progress with an increase in both the number of respondents and engagement scores and it is pleasing to note that a number of respondent groups have been classed as 'Ones to Watch'. I would like to thank all our teams for their hard work throughout the year and their contributions during a period of significant change.

We reported in June that we were looking to strengthen the board.  The search and selection process is nearing completion and we expect to make new non-executive appointments early in the New Year.

Outlook

The current trading performance, order intake and strategic progress made in both divisions give the board confidence in the outlook for 2020.

Neil MacDonald

Independent Chairman

BUSINESS REVIEW

The past year has been a period of significant change for the Group and I am pleased with the developments and progress we have made.

When I joined the business just over a year ago, I commented that we were preparing for improving conditions in the oil and gas market and these conditions have contributed to a considerable improvement in our trading performance.

We have made important management and operational changes within the business over the course of the year.  I am pleased with the way our teams have responded during this transitional period and have been encouraged by the progress made with organisational development and culture that is key to delivering sustainable growth and continuous improvement. 

Good strategic progress and the favourable conditions in core markets underpin our confidence in the outlook for 2020.  Both divisions hold strong order books with reduced customer concentrations and have recently posted record contract wins from an increasingly diverse and buoyant sales pipeline.

Performance

Overall Group revenue for the year was £28.3 million (2018: £21.2 million), up 34% as a result of stronger performance in both divisions, driven by UK and overseas defence contracts, increasing momentum in the oil and gas market and the delivery of our first orders to hydrogen energy customers.

	2019 £m	2018 £m	2017 £m	2016 £m
Group Revenue	28.3	21.2	18.8	20.3
Oil & Gas	16.3	12.4	10.6	12.5
Defence	9.1	6.4	6.4	6.5
Industrial Gases	2.2	2.4	1.8	1.3
Hydrogen Energy	0.7	-	-	-
Group Operating Profit	2.2	1.0	1.6	1.0

Adjusted operating profit more than doubled to £2.2 million (2018: £1.0 million), driven by increased revenue in both divisions, but offset by a lower overall gross margin and investment in operational improvements, sales and support functions.

Order backlog and delayed output increased working capital and slowed cash generation, especially during the second half.  Overall leverage remains higher than our internal target of 20% headroom, with debt levels impacted further by cash outflows in the year from discontinued operations.  We expect working capital to unwind early in 2020 as the order backlog clears and operational initiatives take effect, delivering shorter lead times, improved margins and recovering cash flows.

The strategy review undertaken during the first half of the year confirmed areas of strategic focus and at the interims we set out our three-phase vision for growth over the next five years.  Priorities for the first phase included the divestment of non-core divisions, returning the Group to profitable trading and establishing the foundations for organic growth in the second phase.

I am pleased to report that we have made good progress in the first phase, with the divestment of the Alternative Energy division in June, enabling the Group to focus on its core divisions.  We have started to demonstrate the Group's organic growth potential across both divisions, with increased sales volume from existing customers, new customer acquisitions and major contract wins in new target markets.  Investment in new equipment and skills has enabled us to deliver an extended range of products, while improving quality and efficiency.

Looking beyond the financial performance, there are encouraging signs of the cultural and behavioural changes necessary to deliver stronger performance and sustainable growth.  Further progress has been made in modernising and standardising people management policies with dedicated HR support in each division.  This has helped the divisional management teams navigate recent changes effectively and enabled recruitment, training and welfare issues to be managed successfully across the divisions. We have also strengthened our IT systems and infrastructure during the year to support operational improvements and enhanced information security.

Divisional Review

Chesterfield Special Cylinders (CSC)

	2019 £m	2018 £m	2017 £m	2016 £m
Revenue	13.9	9.9	8.4	9.5
Oil and Gas	2.2	1.4	0.8	1.8
Defence	9.1	6.4	6.4	6.4
Industrial gases	1.9	2.1	1.2	1.3
Hydrogen energy	0.7	-	-	-
Gross Margin (%)	36%	35%	41%	34%
Operating Profit	2.1	1.1	1.1	1.1
Return on Revenue (%)	15%	11%	13%	11%

Divisional revenue for the year was up 39% to £13.9 million (2018: £9.9 million), driven by UK and export defence contracts, offshore drilling unit air pressure vessel orders, Integrity Management deployments and our first cylinder deliveries for hydrogen refuelling station projects.

Total defence market revenue increased by 42% to £9.1 million (2018: £6.4 million), representing 66% of divisional sales.  Revenue for the supply of ultra-large cylinders to UK defence contracts nearly doubled to £4.1 million (2018: £2.1 million), driven by the phasing of activity on the Dreadnought submarine programme.  Revenue for export naval contracts increased by 12% to £3.2 million (2018: £2.8 million) for new construction projects in Germany, France and South Korea.

Total oil and gas market revenue increased by 55% to £2.2 million (2018: £1.4 million), representing 16% of divisional sales. Performance was driven by ultra-large cylinder demand for semi-submersible drilling unit projects in Singapore for our new customer MH Wirth.

The first ultra-large cylinders for hydrogen refuelling stations in the UK and France delivered revenues of £0.7 million, representing 5% of divisional sales in 2019 and demonstrating strategic progress in this exciting target market.

Industrial gases market revenue fell to £1.9 million (2018: £2.1 million) due to a reduction in space programme projects, but the order book was strengthened significantly at year end with a major contract win with EDF Energy.

Integrity Management services delivered strong growth for the fourth consecutive year, with total revenue up 48% to £1.2 million (2018: £0.8 million). Revenue from UK naval deployments increased by 82% to £0.6 million, driven by the steady increase in adoption of in-situ inspection and recertification across the the UK submarine and surface vessel fleets.  Non-naval revenues increased by 18% to £0.2 million with major new customer acquisitions in the diving support vessel market.

Overall divisional gross margin increased to 36% (2018: 35%), with higher margin UK naval projects in the first half offset by export naval contracts and non-defence projects in the second half.

Operating profit for the division increased by £1.0 million to £2.1m (2018: £1.1 million) and return on revenue increased to 15% (2018: 11%).

We have focused on the key strategic initiatives set out previously at the interims to support the organic growth plan and the results of these changes have already been seen with the division securing new projects in both traditional and new target markets. The investment in technology made this year will advance our handling and finishing processes, bringing improved production efficiency and throughput capacity that will underpin the delivery of improved margins.

Successful diversification into the nuclear power generation market came during the year with our largest ever non-defence contract award from EDF Energy for the supply of ultra-large nitrogen storage cylinders to four sites in the UK.  This market also presents a major recurring revenue opportunity for through-life technical support and Integrity Management services for installed cylinder fleets in the UK and worldwide.

I am pleased with performance for the year at CSC and with the progress made in strategic focus areas. The order book for 2020 is strong and the division is well positioned to benefit from exciting opportunities in the sales pipeline across all target markets.

Precision Machined Components (PMC)

	2019 £m	2018 £m	2017 £m	2016 £m
Revenue	14.4	11.2	10.4	10.7
Oil and Gas	14.0	11.0	9.8	10.7
Industrial gases	0.4	0.2	0.6	-
Gross Margin (%)	29%	33%	35%	31%
Operating Profit	1.9	1.5	1.8	1.4
Return on Sales (%)	13%	13%	18%	13%

Divisional revenue for the year was £14.4 million (2018: £11.2 million), up 30% as a result of increased order volumes from oil and gas customers as momentum continues to build in the market. 

Demand for highly specialised drilling, production and valve components from OEM customers increased sharply in the first half of the year and steadily thereafter, driven by the continuing recovery in global exploration and production activity.

Market dynamics and improved sales effectiveness helped increase order intake by 27% over the year to September 2019.  However, the sharp upturn in order intake and customer demand for shorter lead times strained the PMC businesses as capacity and operational improvements lagged the increase in secured orders. This resulted in delayed output and adversely affected margins and cash flows in the second half.  Delays were compounded by constraints in the supply chain for specialist coatings and treatments, which further extended delivery schedules.  To address this, management and operational changes were made during the year, along with significant capacity increases and improvements to production planning and the management of subcontracted processes.  Good progress has been made with the recovery of on-time delivery performance as noted by our customers and the improvement of margins and cash generation is expected in the first half of 2020.

Changes made to drive the turnaround at the Quadscot site, after four years of loss making performance, failed to deliver sufficient improvement through the first half. Output delays and increasing backlog through the second half resulted in site output falling significantly behind plan, which adversely impacted divisional performance and contributed to a lower than forecast improvement in margin for the second half.  However, operational improvements made since year end have positioned Quadscot to recover profitability and be a positive contributor to the division in 2020.  These changes demonstrate the developments that have been required during the initial phase of the strategy.

Overall divisional gross margin reduced to 29% (2018: 33%), impacted by the delayed output, new customer onboarding, extended commissioning of new machining centres and early recruitment to build operational capacity.

Operating profit for the division increased by 25% to £1.9 million (2018: £1.5 million).  Return on revenue remained flat at 13%.

The strengthening of the divisional sales team with assigned responsibilities for key accounts has delivered significant growth from existing and returning customers across all sites.  Considerable progress was also made during the year with new major customer acquisitions, including Halliburton, GE Baker Hughes, TechnipFMC, Aker and Schlumberger, widening regional coverage and extending product scope.   Revenues from new customers represented 11% of the divisional total in 2019 and more than 35% at both Quadscot and Martract sites, showing good progress in reducing long-standing customer concentrations.

Production headcount increased significantly over the year and further recruitment is ongoing for specialist skills in milling, turning and grinding at all sites to support the growing order book and improving outlook.  The introduction of seven new advanced CNC machine tools during the year completed the current planned capital expenditure programme, with no major expenditure planned for 2020.  The new machine tools have extended product scope and range to meet the current and future demand from our target customers and to compete in new areas.  This major investment will help shorten lead times and improve margins across a wider product range.

Management changes and the new divisional operating structure for PMC have been fundamental to planning for sustainable growth and underpin scalability across the division.  New leadership and the integrated structure has enabled improved collaboration between site teams and a single business information system now gives visibility of performance in sales, production, quality and safety across the division.  Centralised production planning implemented in the second half supports increased sharing and utilisation of capacity and skills between sites and will improve margins and reduce lead times.

It has taken longer than expected to address and recover performance in the division, but I am pleased with the progress made more recently with operational improvements, lead time reduction and the recovery of quality and on-time delivery performance, as better planning, production control and supplier management take effect across all sites.

Strategic Progress

In March 2019, we completed a strategic review and set out the vision for growth in three phases:

Phase 1 - Refocus (to mid-2020)

●     Divestment of non-core divisions

●     Recover profitability and cash generation

●     Confirm strategic focus areas, develop growth plans

Phase 2 - Deliver Organic Growth (from mid-2019)

●     Grow revenue and margin from existing and new customers

●     Grow revenue and margin from extended product scopes and emerging sectors

●     Grow margins through operational improvements

Phase 3 - Accelerate Growth & Build Scale (from late-2021)

●     Growth from new sectors

●     Growth from new regions and regional operations

●     Scale from acquisitions

As reported, progress has been made under Phase 1 with the divestment of the Alternative Energy Division in the year and the Engineered Products Division in the prior year.  The recovery of profitable performance and cash generation for the remaining two divisions is clear in the reported results and further progress is expected.  The strategy review confirmed the areas of strategic focus and the key initiatives that will deliver growth and create value over the next three to five years. 

Organic growth has already been demonstrated in both divisions, with increased revenue from existing customers, new customer acquisitions and major contract wins in new target markets.  We have also started to see the positive impact of investment in new equipment through improved product scope, quality performance and efficiency gains.  This strategic progress supports the divisional outlook for 2020 and beyond.

Outlook

Chesterfield Special Cylinders

The outlook for UK naval contracts remains strong, with order book visibility to 2023 for Dreadnought submarine and Type-26 frigate programmes.  The strategic focus for UK naval programmes is to increase contract margins through stronger project management, operational improvements and supply chain efficiencies.  Savings have already been identified in the supply chain and are expected to deliver margin improvements for UK and export projects from 2020.

Export defence contracts were strong in 2019, but project phasing will drive fewer orders and lower revenues in 2020.  A recovery of submarine build programmes for foreign navies is expected in 2021, with major projects in the pipeline for Australian and Indonesian navies.  As the preferred supplier to the world's NATO-friendly navies, the strategic focus is to maximise our share of new construction programmes and to develop an export market for through-life technical support and Integrity Management services, thereby growing recurring revenue and margin from in-situ testing and recertification.

The outlook in oil and gas markets for drilling unit air pressure vessels and diving support systems remains unpredictable, but we are well positioned for a recovery and the opportunity pipeline is currently stronger for 2020 and 2021 than previously expected. We are seeing a slow but steady increase in new project enquiries for air pressure vessels, with returning customers looking for product and system innovation, where we can add value.

Momentum is building steadily in the hydrogen energy market as the focus on low-emission and low-carbon transportation and power generation increases globally.  Following the delivery of two breakthrough contracts over the past year for projects in the UK and Europe, we are well positioned to win further contracts independently and with our tendering partners for the supply and through-life support of ultra-large high pressure cylinders for hydrogen refuelling stations worldwide.  A new contract was secured post year end with another major hydrogen refuelling systems integrator and a growing opportunities pipeline underpins our confidence in the outlook for significant growth in this strategic focus area from 2021.

Our Integrity Management services are highly valued by existing customers and have tremendous growth potential in the UK and worldwide.  The outlook for these recurring revenue services remains positive with increasing demand from the UK submarine and surface vessel fleet maintenance programme for in-situ cylinder testing and recertification.  Diving support vessel contracts are expected to deliver further growth for in-situ inspection in 2020, following several new customer acquisitions and increasing offshore activity. 

Precision Machined Components

Momentum in the oil and gas market continues and demand for highly specialised drilling, production and valve components from existing and new customers is expected to remain strong through 2020.  Our customers forecast further growth in 2021 as activity ramps up on their offshore engineering projects in the US Gulf of Mexico, South America, West Africa, Australia and the North Sea. 

We have increasingly diverse opportunities in a growing sales pipeline.  Deep water subsea tree components, landing strings and flow control and valve assemblies have been dominant, while enquiries for down-hole analytic components are growing steadily.

New product development undertaken with customers during 2018 and 2019 has resulted in orders for 2020 delivery, demonstrating the value of time invested in these collaborative projects.

I am pleased to report that order intake continued to accelerate post year end, with record levels in November 2019 and the highest twelve-month intake for over five years.  The Al-Met team secured their largest ever contract from a major oilfield services customer, providing recurring monthly revenues for the year ahead.  The divisional order book at the end of November 2019 was 70% higher than in 2018, with the Roota site having increased their order book threefold in twelve months.  The Quadscot site continues to show strong growth from newly acquired customers, with an order book over 40% higher than at year end.

The completion of divisional integration and operational improvements together with new machine tools and the ongoing investment in capacity are expected to increase margins in the year ahead and allow the division to capitalise further on opportunities for growth and diversification in a strong oil and gas market.

We remain committed to creating value for shareholders through the delivery of our vision for growth.  Strategic progress and favourable conditions in target markets underpin confidence in the outlook for 2020, with both divisions holding strong order books, posting recent major contract wins and seeing increasingly diverse opportunities in the sales pipeline.  Our focus is to ensure that operational performance, margins and cash generation keep pace with the progress made in sales.

I look forward to the year ahead with confidence as we start to see the benefits of operational changes and strategic progress made during the course of this year. I would like to thank the management team and all colleagues for their commitment and support through this busy year of change.

Chris Walters

Chief Executive

Financial review

Group revenue*  Up 34% to £28.3m (2018: £21.2m)	Gross profit margin down 1.8ppt to 32.4% (2018: 34.2%)	Adjusted operating profit** up £1.2m to £2.2m (2018: £1.0m)	Return on revenue*** up 2.9ppt to 7.9% (2018: 5.0%)
Net operating cash inflow**** £2.0m (2018: £1.9m)	Closing net RCF Debt increased to £8.6m (2018: £5.7m)	Total loss reduced to £(1.4)m (2018: £(5.1)m)	Net working capital as a % of revenue increased to 26% (2018: 25%)

* all information relates to continuing operations only, prior period comparatives have been restated to remove discontinued operations

**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 and excluding cash flows associated with discontinued operations

I am pleased to present the results of what has been another very busy year for the Group.

Following the disposal of PT Biogas Holdings Limited in the year and Hydratron Limited in the prior year, all results and costs for the Alternative Energy division and the Engineered Products division have been presented as discontinued operations. The following trading commentary is in respect of continuing operations only.

The Group revenue has increased 34% on the prior year.  As expected, phasing of large defence projects in CSC was weighted to the first half although overall Divisional revenue was up 39% on the prior year. PMC's second half was 11% up on the first half reflecting the continued momentum in the oil & gas sector and three consecutive reported halves of revenue growth. 

We stepped up investment in new equipment and technology with £2.8 million of new plant and machinery, £2.1 million of which was on new machining centres in the PMC division to add capacity and capability.  The use of asset finance facilities to fund this programme efficiently resulted in new asset finance leases of £2.0 million in the year. The R&D tax credit relief remains above 4% of revenue with claims in 2019 expected to be in excess of this (2018: 4.8%).

Our Group Head of IT, which is a new role, joined the group in December 2018 to lead the Group's IT strategy and associated risk management. In the year a further £0.8 million has been invested in IT systems and technology to standardise systems and improve infrastructure and communications.  We have also made further progress with automation of data analysis and real-time management information.

In the short-term, the financial priority continues to be focused on the reduction of net debt with working capital management at the fore. Financial covenants on the Group's revolving credit banking facility (RCF) were complied with throughout the period.  The operating cash inflows overall were positive, however the phasing of contracts in CSC and the order backlog in PMC adversely impacted working capital in the fourth quarter and cash conversion was lower than targeted at 0.5x (target over 1x), this will unwind through 2020. These factors, along with the significant cash outflow of discontinued operations up to the date of disposal, have led to an overall increase in net RCF debt (excluding finance leases) at the year-end of £2.9 million.

Following the disposal of the Alternative Energy division a re-financing was undertaken to review the banking facilities required to support the Group's post-divestment strategy, as set out in the interim financial statements.   The Group's RCF, which was put in place in October 2014, had been extended a number of times, and was due to expire in April 2020.  Fully committed and credit approved terms were reached for the replacement RCF facility with the incumbent bank in September 2019.  Documentation and signing was completed 10 December 2019 and, in accordance with IAS 1, the borrowing has been classified as a current liability due within 6-12 months at the balance sheet date.  At the date of these preliminary results the facility is classified as a long-term liability.  

The new facility is on substantially the same terms, with the exception of a higher and fixed margin.  The total facility is £12 million until the end of November 2020 and £10 million for the remainder of the term and expires in December 2021.

Trading results

2019 was the year of adoption of IFRS 15 'Revenue from contracts with customers', which we have applied using the modified retrospective approach without restatement as it had no material impact on previously reported results or retained earnings. In accordance with the transition guidance, IFRS 15 has only been applied to contracts that were incomplete as at 30 September 2018 and the adoption of this new standard has only impacted the CSC Division, specifically the ultra-large cylinder contracts.

CSC

Revenue increased nearly 40% on the prior year due principally to the volume of activity and number of projects completed or in progress at the year-end but also due to the adoption of IFRS 15 'Revenue from contracts with customers' which for CSC has resulted in £1.7 million of revenue being recognised in the period ended 28 September 2019 that would have been recognised in future periods if IFRS 15 had not been adopted. Consideration has been given to the potential impact of recognition over time on the results for the period ended 29 September 2018, but due to the mix of ongoing contracts at 29 September 2018, the impact would have been immaterial.

Eleven contracts that are categorised as 'recognised over time' were in progress at the end of the year with seven customers.  £5.2 million of future revenue on these contracts relates to as yet unfulfilled performance obligations which are due for delivery in 2020.

Gross Profit has increased significantly in the year almost entirely due to the volume of activity, there was a 0.7ppt increase in the gross margin which reflects the actual mix of work in the year.

As a direct result of the volume of activity CSCs operating profit has nearly doubled to £2.1 million (2018: £1.1 million) and there has been a 4ppt increase in the Return on Revenue in the year to 15.1% (2018: 11.1%). 

PMC

PMC revenue has increased almost 30% as volume of activity and opportunity in the Oil & Gas market has continued through the year.  PMC's second half was 11% up on the first half reflecting the continued momentum in the oil & gas sector and three consecutive reported halves of revenue growth.

Gross Profit has not increased at the same rate as sales and there was a 3.9ppt reduction in Gross Margin, compared to 2018, to 29%.  The most significant contributor to this was the poor performance, particularly in the second half, of the Quadscot site which failed to deliver sufficient improvement through the first half. Output delays and increasing backlog through the second half resulted in a site output falling significantly behind plan, which adversely impacted gross margin.

Operating profit increased 25% to £1.9m which represents a Return on Revenue of 13%, a 0.4ppt fall from 2018. 

Central costs

Unallocated central costs (before M&A, amortisation on acquired businesses and exceptional charges) were £1.7 million (2018: £1.6 million).

In respect of the Group's various share option plans there was a net cost in the year of £0.1 million (2018: net nil).

Exceptional items

Reorganisation and redundancy costs in the year were £0.5 million (2018: £0.5 million), which predominantly relate to the restructuring of the PMC division.

Amortisation costs were £1.8 million (2018: £1.8 million). 

Discontinued operations

On 4 June 2019, the Group completed the disposal of the entire issued share capital of its subsidiary, PT Biogas Holdings Limited which was the holding company for the Group's Alternative Energy division, to Creation Capital Corp, a capital pool company listed on the TSX Venture Exchange.  The business was reported by the Group as the Alternative Energy division.

In the prior year 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 £1.2 million loss from discontinued operations in 2019 comprises the operating loss of the Alternative Energy Division for the period up to disposal, costs to sell and impairment charges associated with the business.  The prior year loss from discontinued operations of £3.7 million includes the results of both disposals.  Further details are in Note 3 of this preliminary announcement.

Taxation

The tax credit for the year was £0.1 million (2018: £0.3 million).

The loss before tax, impact of the disposal of the Alternative Energy division and adjustments in respect of prior years have all contributed to the credit in 2019. The applicable current tax rate for the year is 19% (2018: 19%). The utilisation of losses and R&D tax credits have resulted in a lower effective tax rate than the current rate of tax.

R&D tax credit benefits across the Group in respect of 2019 are projected to be around £1.2 million (2018: £1.0 million).

Corporation tax refunded in the year totalled £0.2 million (2018: paid £0.1 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.

Following the disposal of the Alternative Energy Division the overall exposure of the group to currency fluctuations in respect of trading has reduced.  The Group is however more exposed to the translational impact of the CA Dollar in respect of the Greenlane Renewables Inc Promissory Note, 50% of which is denominated in that currency.   Where appropriate, and when timing of future cash flows are able to be reliably estimated, forward contracts are taken out to cover exposure. 

In 2019 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 immaterial (2018: £0.1m).  In 2019 a loss of £0.1 million (2018: loss £0.1 million) was initially recorded below adjusted operating profit in respect of the retranslation of foreign operations. On disposal of the Alternative Energy Division all historic accumulated gains and losses on retranslation of its foreign operations were removed from the translation reserve and reclassified to the profit and loss account, which resulted in a £0.3 million gain being recorded below adjusted operating profit.

As at 28 September 2019 there were no forward contracts in place (2018: none).

Financing, cash flow and leverage

Operating cash inflow for continuing operations before movements in working capital and reorganisation and redundancy costs was £3.7 million (2018: £1.9 million).  After a net working capital outflow of £2.0 million (2018: neutral), cash generated from continuing operations was £2.0 million (2018: £1.9 million). 

Cash outflow in respect of discontinued operations trading up to the point of disposal was £2.5 million (2018: £0.4 million).  Gross cash consideration in respect of the disposal of the Alternative Energy division was £2.0 million (2018: cash inflow on disposal of EP £1.1 million). 

Cash outflow in the year in respect of exceptional costs was £1.6 million (2018: £1.0 million), this includes cash flows in relation to certain items that were recognised in the prior year profit and loss.

Net RCF debt was £8.6 million (2018: £5.7 million), the £2.9 million increase driven primarily by working capital outflow, planned capital expenditure and the operating cash outflow of the AE division prior to disposal.  The Group's £15 million facility was £10.8 million drawn at the year-end (2018: £11.8 million).  The continued capital investment programme has resulted in a net increase in the finance lease debt of £1.7 million to £2.8 million (2018: £1.1 million) leading to total net debt at the year-end of £11.4 million.  Capital expenditure will reduce in 2020 as planned, following the significant investments made in 2019.

The increase in adjusted EBITDA has more than off-set the increase in net debt which means the measured Net Debt to Adjusted EBITDA leverage ratio reduced to 1.8:1 at 28 September 2019 (2018: 2.3:1).  All facility covenants have been complied with throughout the period.

Earnings per share and dividends

Adjusted earnings per share increased to 7.8 pence (2018: 2.9 pence) for continuing operations.  Basic loss per share was (2.1) pence (2018: (7.5) loss per share) for continuing operations.

No dividends were paid in the year (2018: nil) and no dividends have been declared in respect of the year ended 28 September 2019 (2018: nil).  Distributable reserves in the parent company decreased 61% to £6.7 million (2018: £16.9 million), driven by the disposal of the Alternative Energy Division.  The parent company also has £26.2 million of share premium reserves which is readily convertible to a distributable reserve.

Statement of financial position

Goodwill and intangible assets (at cost) decreased by £10.8 million to £25.0 million (2018: £35.8 million). £11.0 million related to the disposal of the Alternative Energy Division, the balance was investment in new product development and investment in IT systems.  Amortisation in the year on continuing operations was £1.8 million (2018: £1.8 million).

The consideration received on the disposal of the Alternative Energy Division included, in addition to cash on completion, shares in the newly listed Greenlane Renewables Inc and a Promissory Note. These are recognised as 'Other long-term financial assets' and in accordance with IFRS 9 the equity investment has been classified as a FVTPL asset and the promissory note is held at amortised cost.    

 
Net current assets, excluding the renegotiated RCF borrowings, decreased to £9.1 million (2018: £9.6 million). Non-current liabilities, including the renegotiated RCF borrowings now classified as long-term, increased slightly to £14.7 million (2018: £14.4 million) after borrowings increased to £13.0 million (2018: £12.6 million).

Net assets decreased by 3.8% to £32.1 million (2018: £33.4 million) and net asset value per share decreased to 176 pence (2018: 180 pence).

Joanna Allen

Chief Financial Officer

 

Consolidated statement of comprehensive income

For the 52 week period ended 28 September 2019

	Notes	52 weeks ended 28 September 2019	52 weeks ended 29 September 2018
		£'000	£'000
Revenue	1	28,291	21,167
Cost of sales		(19,119)	(13,932)
Gross profit		9,172	7,235
Administration expenses		(6,938)	(6,186)
Operating profit before M&A costs, amortisation and exceptional charges and credits	1	2,234	1,049
Separately disclosed items of administrative expenses:
Amortisation and M&A related exceptional items		(1,832)	(1,816)
Other exceptional charges		(450)	(511)
Operating loss		(48)	(1,278)
Finance costs		(467)	(400)
Loss before taxation	2	(515)	(1,678)
Taxation	4	126	313
Loss for the period from continuing operations		(389)	(1,365)
Discontinued operations
Loss for the period from discontinued operations	3	(1,203)	(3,723)
Loss for the period attributable to the owners of the parent		(1,592)	(5,088)
Other comprehensive income to be reclassified to profit or loss in subsequent periods: Currency exchange differences on translation of foreign operations		(140)	(60)
Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Exchange differences on translation of discontinued foreign operations		325	-
Total comprehensive income for the period attributable to the owners of the parent		(1,407)	(5,148)
Basic earnings per share
From continuing operations		(2.1)p	(7.5)p
From discontinued operations		(6.5)p	(20.5)p
From loss for the period		(8.6)p	(28.0)p
Diluted earnings per share
From continuing operations		(2.1)p	(7.5)p
From discontinued operations		(6.5)p	(20.5)p
From loss for the period		(8.6)p	(28.0)p

Consolidated statement of financial position

As at 28 September 2019

	Notes	28 September 2019	29 September 2018
		£'000	£'000
Non-current assets
Goodwill	6	9,510	14,370
Intangible assets		6,598	11,444
Property, plant and equipment		14,042	12,032
Deferred tax asset		278	402
Other long-term financial assets	7	7,350	-
		37,778	38,248
Current assets
Inventories		5,115	4,383
Trade and other receivables		9,541	11,998
Cash and cash equivalents		2,208	6,140
Current tax	4	95	35
		16,959	22,556
Total assets		54,737	60,804
Current liabilities
Trade and other payables		(7,360)	(12,745)
Borrowings - asset finance leases	8	(656)	(241)
Borrowings - revolving credit facility*	8	(10,800)	-
		(18,816)	(12,986)
Non-current liabilities
Other payables		(158)	(198)
Borrowings - asset finance leases	8	(2,116)	(836)
Borrowings - revolving credit facility*	8	-	(11,800)
Deferred tax liabilities		(1,561)	(1,591)
		(3,835)	(14,425)
Total liabilities		(22,651)	(27,411)
Net assets		32,086	33,393
Equity
Share capital		930	930
Share premium account		26,172	26,172
Translation reserve		(280)	(465)
Retained earnings		5,264	6,756
Total equity		32,086	33,393

*The Group's RCF, which was put in place in October 2014 had been extended a number of times, and was due to expire in April 2020.  Committed and credit approved terms were reached for the replacement RCF facility with the incumbent bank in September 2019.  Documentation and signing was completed 10 December 2019 and, in accordance with IAS 1, the borrowing has been classified as a current liability due within 6-12 months at the balance sheet date.  At the date of these preliminary results the facility is classified as a long-term liability.

Consolidated statement of changes in equity

For the 52 week period ended 28 September 2019

	Notes	Share capital	Share premium account	Translation reserve	Profit and loss account	Total equity
		£'000	£'000	£'000	£'000	£'000
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 - continuing operations		-	-	-	(1,365)	(1,365)
Loss for the period - discontinued operations		-	-	-	(3,723)	(3,723)
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
Share based payments		-	-	-	100	100
Transactions with owners		-	-	-	100	100
Loss for the period - continuing operations		-	-	-	(389)	(389)
Loss for the period - discontinued operations		-	-	-	(1,203)	(1,203)
Other comprehensive income: Exchange differences on translating foreign operations		-	-	(140)	-	(140)
Other comprehensive income: Exchange differences on translation of discontinued foreign operations		-	-	325	-	325
Total comprehensive income		-	-	185	(1,592)	(1,407)
Balance at 28 September 2019		930	26,172	(280)	5,264	32,086

 

Consolidated statement of cash flows

For the 52 week period ended 28 September 2019

	Notes	52 weeks ended 28 September 2019	52 weeks ended 29 September 2018
		£'000	£'000
Operating activities
Cash flows from operating activities	9	628	291
Finance costs paid		(464)	(394)
Income tax (paid) / refunded		159	(56)
Cash flows from discontinued operations		(2,534)	-
Net cash outflow from operating activities		(2,211)	(159)
Investing activities
Proceeds from sale of fixed assets		-	127
Purchase of property, plant and equipment		(3,693)	(1,463)
Cash inflow on disposal of subsidiaries net of cash disposed of		1,277	1,088
Net cash used in investing activities		(2,416)	(248)
Financing activities
Repayment of borrowings		(1,307)	(3,438)
Proceeds from lease financing		2,002	454
Shares issued		-	4,740
Net cash from financing activities		695	1,756
Net (decrease) / increase in cash and cash equivalents		(3,932)	1,349
Cash and cash equivalents at beginning of period		6,140	4,791
Cash and cash equivalents at end of period		2,208	6,140

 

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, with the exception of new accounting standards adopted in the period, have remained unchanged from those set out in the Group's 2018 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 28 September 2019 was approved by the Board on 16 December 2019 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 2019 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 29 September 2018 have been delivered to the Registrar of Companies.

Going concern

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

The Group's renegotiated revolving credit facility expires in December 2021 (see note 8) and management have produced forecasts for all business units which have been reviewed by the Directors. These demonstrate the Group is forecast to generate profits and cash in 2019/2020 and beyond and that the Group has sufficient cash reserves and headroom in financial covenants to enable the Group to meet its obligations as they fall due for a period of at least 12 months from the date when these financial statements have been signed.

Management have modelled the financial covenants in the forecasts and no breach is expected.

The Contingent Liability disclosed in Note 11 to this preliminary announcement is a critical judgement in respect of going concern.  Uncertainty over the outcome of the sentencing hearing arises in particular in relation to the following:

●      the level of culpability;

●      the likelihood of harm;

●      the matrix applied and starting point of the fine; and

●      mitigations presented

In relation to the Sentencing Guidelines and the quantum of any fine specific consideration has also been given to:

●      Sentencing mitigation factors;

●      Rights of appeal;

●      Time to pay;

●      Alternative sources of finance; and that

●      The fine should be proportionate to the overall means of the offender in accordance with section 164 of the Criminal Justice Act 2003

As part of the assessment process a number of scenarios have been modelled that consider the wide range of potential outcomes of the Contingent Liability.  Management have sought expert option to inform their assessment, however there remains inherent uncertainty as to the outcome of the sentencing hearing and therefore the potential mitigations which leads to a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern

Nevertheless, after undertaking the assessments they have, and considering the uncertainties set out above, the Directors have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future and for these reasons they continue to adopt the going concern basis for preparing the financial statements.

New Standards adopted as at 30 September 2018

IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 replaces IAS 18 'Revenue', IAS 11 'Construction Contracts' and several revenue-related interpretations. As part of the transition to IFRS 15 the Group have assessed whether the IFRS 15 criteria for the recognition of revenue over time are met. This has resulted in £1.7 million of revenue being recognised in the period ended 28 September 2019 that would have been recognised in future periods if IFRS 15 had not been adopted. Consideration has been given to the potential impact of recognition over time on the results for the period ended 29 September 2018, but due to the mix of ongoing contracts at 29 September 2018, the impact would have been immaterial.

The new standard has been applied using the modified retrospective approach without restatement as it had no material impact on previously reported results or retained earnings. In accordance with the transition guidance, IFRS 15 has only been applied to contracts that were incomplete as at 29 September 2018.

IFRS 15 does not include any guidance on how to account for loss-making contracts. Accordingly, such contracts are accounted for using the guidance in IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'.

Under IAS 37, the assessment of whether a provision needs to be recognised takes place at the contract level and there are no segmentation criteria to apply. As a result, there are some instances where loss provisions recognised in the past have not been recognised under IFRS 15 because the contract as a whole is profitable. In addition, when two or more contracts entered into at or near the same time are required to be combined for accounting purposes, IFRS 15 requires the Group to perform the assessment of whether the contract is onerous at the level of the combined contracts. The Group also notes that the amount of loss accrued in respect of a loss-making contract under IAS 11 takes into account an appropriate allocation of construction overheads. This contrasts with IAS 37 where loss accruals may be lower as they are based on the identification of 'unavoidable costs'. There were no onerous contracts identified on adoption or during the year.

IFRS 9 'Financial Instruments'

IFRS 9 replaces IAS 39 'Financial Instruments: Recognition and Measurement'. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an 'expected credit loss' model for impairment of financial assets. 

When adopting IFRS 9, the Group has applied transitional relief and opted not to restate prior periods.

The adoption of IFRS 9 has impacted the impairment of financial assets to which the expected credit loss model applied.  This affects the Group's trade receivables.  For contract assets arising from IFRS 15 and trade receivables, the Group applies a simplified model of recognising lifetime expected credit losses as these items do not have a significant financing component.

The financial assets are initially measured at fair value and subsequently measured at amortised cost.

As the accounting for financial liabilities remains largely the same under IFRS 9 compared to IAS 39, the Group's financial liabilities were not impacted by the adoption of IFRS 9. The Group's financial liabilities include borrowings and trade and other payables.

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).

For the 52 week period ended 28 September 2019

	Cylinders	Precision Machined Components	Central costs	Total
	£'000	£'000	£'000	£'000
Revenue
- total	13,860	14,449	-	28,309
- revenue from other segments	-	(18)	-	(18)
- intra segment revenue from discontinued operations	-	-	-	-
Revenue from external customers	13,860	14,431	-	28,291
Gross Profit	4,996	4,198	(22)	9,172
Operating profit / (loss) before M&A costs, amortisation and exceptional charges and credits	2,089	1,879	(1,734)	2,234
Amortisation and M&A related exceptional items	-	(1,750)	(82)	(1,832)
Other exceptional charges	-	(398)	(52)	(450)
Operating profit / (loss)	2,089	(269)	(1,868)	(48)
Net finance costs	(15)	(30)	(422)	(467)
Profit / (loss) before tax	2,074	(299)	(2,290)	(515)
Segmental net assets *	7,946	54,403	(30,263)	32,086
Other segment information:
Capital expenditure - property, plant and equipment	1,359	2,080	13	3,452
Depreciation	505	733	119	1,357
Amortisation	-	1,750	82	1,832

 

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

 

For the 52 week period ended 29 September 2018

	Cylinders	Precision Machined Components	Central costs	Total
	£'000	£'000	£'000	£'000
Revenue
- total	9,942	11,551	-	21,493
- revenue from other segments	-	(83)	-	(83)
- intra segment revenue from discontinued operations	-	(243)	-	(243)
Revenue from external customers	9,942	11,225	-	21,167
Gross Profit	3,511	3,694	30	7,235
Operating profit / (loss) before M&A costs, amortisation and exceptional charges and credits	1,099	1,501	(1,551)	1,049
Amortisation and M&A related exceptional items	-	(1,741)	(75)	(1,816)
Other exceptional charges	(27)	(60)	(424)	(511)
Operating profit / (loss)	1,072	(300)	(2,050)	(1,278)
Net finance costs	(15)	(8)	(377)	(400)
Profit / (loss) before tax	1,057	(308)	(2,427)	(1,678)
Segmental net assets *	6,392	54,254	(39,045)	21,601
Other segment information:
Capital expenditure - property, plant and equipment	410	600	18	1,028
Depreciation	473	635	125	1,233
Amortisation	-	1,741	75	1,816

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

The Group's revenue disaggregated by primary geographical markets is as follows:

Revenue	2019			2018
	Cylinders	Precision Machined Components	Total	Cylinders	Precision Machined Components	Total
	£'000	£'000	£'000	£'000	£'000	£'000
United Kingdom	8,388	7,411	15,799	5,123	5,904	11,027
Europe	2,701	4,467	7,168	2,363	3,758	6,121
Rest of the World	2,771	2,553	5,324	2,456	1,563	4,019
	13,860	14,431	28,291	9,942	11,225	21,167

The Group's largest customer, which is reported within the Cylinders segment, contributed 13% to the Group's revenue (2018: 7% reported in the Precision Machined Components segment).

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

Revenue	2019	2018
	£'000	£'000
Oil and gas	16,272	12,405
Defence	9,118	6,420
Industrial gases	2,175	2,342
Hydrogen energy	726	-
	28,291	21,167

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.

The Group's revenue disaggregated by pattern of revenue recognition and category is as follows:

Revenue	2019		2018
	Cylinders	Precision Machined Components	Cylinders	Precision Machined Components
	£'000	£'000	£'000	£'000
Sale of goods transferred at a point in time	8,996	14,431	7,646	11,225
Sale of goods transferred over time	1,739	-	-	-
Rendering of Services	3,125	-	2,296	-
	13,860	14,431	9,942	11,225

The following aggregated amounts of transaction values relate to the performance obligations from existing contracts that are unsatisfied or partially unsatisfied as at 28 September 2019:

Revenue	2020
	£'000
Sale of goods - Cylinders	5,158

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

	2019			2018
	United Kingdom	Rest of the World	Total	United Kingdom	Rest of the World	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Non-current assets	37,778	-	37,778	38,194	54	38,248
Additions to property, plant and equipment	3,452	-	3,452	1,030	63	1,093

 

2. Loss before taxation

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

	2019	2018
	£'000	£'000
Depreciation of property, plant and equipment - owned assets	1,291	1,173
Depreciation of property, plant and equipment - assets under finance lease and hire purchase agreements	66	60
(Profit)/Loss on disposal of fixed assets	-	(73)
Amortisation of intangible assets acquired on business combinations	1,832	1,816
Amortisation of grants receivable	(40)	(86)
Staff costs - excluding share based payments	9,765	8,654
Cost of inventories recognised as an expense	13,921	9,318
Operating lease rentals:
- Land and buildings	360	162
- Machinery and equipment	62	36
Foreign currency (gain)/loss	10	(102)
Share based payments	100	30

 

3.      Discontinued operations

On 4 June 2019, and as separately communicated to Shareholders on that date, the Group completed the disposal of the entire issued share capital of its subsidiary, PT Biogas Holdings Limited ("Greenlane"), which was the holding company for the Group's Alternative Energy division.  The loss for the year ended 28 September 2019 relating to this division was £2.8m (period ended 29 September 2018: £1.1m).

In the previous financial year, on 7 June 2018, the Group completed the disposal of its subsidiary Hydratron Limited.  The loss for the year ended 28 September 2019 relating to this entity was £nil (period ended 29 September 2018: £1.9m).

The results of both disposals are reflected in the prior period.

	36 weeks to 4 June 2019	52 weeks  to 29 September 2018
	£'000	£'000
Revenue	2,143	13,454
Expenses	(4,271)	(14,204)
Operating Loss pre-exceptional costs	(2,128)	(750)
Amortisation	(558)	(768)
Finance (costs)/income	3	(6)
Exceptional costs:
Reorganisation and redundancy	-	(192)
Costs to sell	(1,694)	(457)
Profit/(Loss) after tax on disposal (note 29)	3,095	(114)
Goodwill impairment	-	(1,692)
Loss before taxation	(1,282)	(3,967)
Taxation	79	244
Loss for the year	(1,203)	(3,723)

	2019	2018
	£'000	£'000
Cash flows from discontinued operations
Net cash used in operating activities	(2,534)	755
Net cash from investing activities	-	(65)
Net cash from financing activities	-	505
Net cash flows for the year	(2,534)	1,195

4.      Taxation

	2019	2019	2019	2018	2018	2018
	£'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	(220)	(79)	(299)	-	-	-
Foreign tax	-	-	-	-	-	-
	(220)	(79)	(299)	-	-	-
Deferred tax (credit)/expense
Origination and reversal of temporary differences	(133)		(133)	(231)	(293)	(524)
Deferred tax assets no longer recognised					52	52
Over provision in respect of prior years	227		227	(82)	(3)	(85)
	94		94	(313)	(244)	(557)
Total taxation (credit)/expense	(126)	(79)	(205)	(313)	(244)	(557)

Corporation tax is calculated at 19% (2018: 19%) 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:

	2019 £'000	2019 £'000	2019 £'000	2018 £'000	2018 £'000	2018 £'000
	Continuing	Discontinued	Total	Continuing	Discontinued	Total
Loss before taxation	(515)	(1,282)	(1,797)	(1,618)	(4,027)	(5,645)
Theoretical tax at UK corporation tax rate 19% (2018: 19%)	(98)	(243)	(341)	(307)	(765)	(1,073)
Effect of (credits) / charges:
- non-deductible expenses and other timing differences	51	1	52	258	332	590
- disallowable release of deferred consideration	-	-	-	-	-	-
- other disallowable acquisition costs	-	-	-	-	-	-
- research and development allowance	(118)	-	(118)	(68)	-	(68)
- adjustments in respect of prior years	7	(79)	(72)	(82)	(3)	(85)
- non-taxable profit on disposal	-	(293)	(293)
- effect of unrealised losses on discontinued operations	-	535	535	(36)	76	40
- change in taxation rates	-	-	-	(5)	-	(5)
- effect of discontinued operations translation rates	62	-	62	-	11	11
- differences in corporation tax rates	-	-	-	-	54	54
- losses not previously recognised now utilised	(30)	-	(30)	(73)	-	(73)
- deferred tax assets no longer recognised				-	52	52
Total taxation credit	(126)	(79)	(205)	(313)	(244)	(557)

 

5. 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 28 September 2019

	Continuing £'000	Discontinued £'000	Total £'000
Loss after tax	(389)	(1,203)	(1,592)
			No.
Weighted average number of shares - basic			18,595,165
Dilutive effect of share options			9,234
Weighted average number of shares - diluted			18,604,399
Basic loss per share	(2.1)p	(6.5)p	(8.6)p
Diluted loss per share	(2.1)p	(6.5)p	(8.6)p

 

The Group adjusted earnings per share is calculated as follows:

Loss after tax	(389)	(1,203)	(1,592)
Amortisation and M&A related exceptional items	1,832	558	2,390
Other exceptional charges and credits	450	(1,401)	(951)
Theoretical tax effect of the above adjustments	(434)	(428)	(862)
Adjusted earnings	1,459	(2,474)	(1,015)
Adjusted earnings per share	7.8p	(13.3)p	(5.5)p

 

For the 52 week period ended 29 September 2018

	Continuing £'000	Discontinued £'000	Total £'000
Loss after tax	(1,365)	(3,723)	(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	(7.5)p	(20.5)p	(28.0)p
Diluted loss per share	(7.5)p	(20.5)p	(28.0)p

 

The Group adjusted loss per share is calculated as follows:

	Continuing £'000	Discontinued £'000	Total £'000
Loss after tax	(1,365)	(3.723)	(5,088)
Amortisation and M&A related exceptional items	1,816	2,460	4,276
Other exceptional charges and credits	511	763	1,274
Theoretical tax effect of the above adjustments	(442)	(591)	(1,033)
Adjusted earnings	520	(1,091)	(571)
Adjusted earnings per share	2.9p	(6.0)p	(3.1)p

 

6. Goodwill

	Total £'000
Cost and gross carrying amount
At 30 September 2017	16,062
Removed upon business disposal	(1,692)
At 29 September 2018	14,370
Removed upon business disposal (note 10)	(4,860)
At 28 September 2019	9,510

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 the 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 14.7% to the Precision Machined Components Division (2018: 12.5%).  The 2019 assessment, following the reorganisation of PMC to an integrated division, has been carried out at the divisional level.

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. 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.

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 the 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 believes 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 28 September 2019, 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. 

7. Other Long Term Financial Assets

	2019	2018
	£'000	£'000
Listed Security	1,250	-
Promissory Note	6,100	-
	7,350	-

The Group holds a listed security asset which related entirely to its shareholding in Greenlane Renewables and a Promissory Note which formed part of the consideration on sale of the Alternative Energy division in the year.

The fair value of the shareholding in Greenlane Renewables Inc the following investments was determined by reference to published price quotations in an active market (classified as level 1 in the fair value hierarchy.

The promissory note is valued at amortised cost. The term of the note is four years with a repayment date of 3 June 2023. The note can be repaid any time within that time period. Interest is charged at 7% rolled up into the principal unless a trigger event occurs under the terms of the note which causes interest payments to be satisfied in cash.  On initial recognition the value was assessed to be the face value.  The note is denominated 50% in GBP and 50% in Canadian dollars.  The asset is held solely to collect associated cash flows which relate to principal and interest only.

8. Borrowings

	2019 £'000	2018 £'000
Non-current
Finance lease liabilities	2,116	836
Revolving credit facility	-	11,800
	2,116	12,636
Current
Finance lease liabilities	656	241
Revolving credit facility	10,800	-
	11,456	241
Total borrowings	13,572	12,877

During the period the bank loan bore average coupons of 2% above LIBOR annually.

During the year the Group had in place a £15 million Revolving Credit Facility (RCF) which was drawn £10.8 million at the year end date.  These bank borrowings are secured on the property, plant and equipment of the group by way of a debenture. Obligations under finance leases are secured on the plant & machinery assets to which they relate.

The Group's existing RCF, which was put in place in October 2014 had been extended a number of times, and was due to expire in April 2020.  Committed and credit approved terms were reached for the replacement RCF facility with the incumbent bank in September 2019.  Documentation and signing was completed 10 December 2019 and, in accordance with IAS 1, the borrowing has been classified as a current liability due within 6-12 months at the balance sheet date.  At the date of these preliminary results the facility is classified as a long-term liability.   The renegotiated facility, is on substantially the same terms with the exception of a higher and fixed margin. The total facility is £12 million until end November 2020 and £10 million for the remainder of the term and expires in December 2021.  

The key financial covenant remains the leverage covenant, which is tested quarterly, and has a maximum permitted net debt to adjusted EBITDA ratio of 3.25:1 for the first four quarterly test dates reducing to a maximum of 3:1 in the second year of the term.

The carrying amount of the other bank borrowings is considered to be a reasonable approximation of fair value. The carrying amounts of the group's borrowings are all denominated in GBP.

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

	2019	2018
	£'000	£'000
Due within one year
Finance lease liabilities	656	241
Revolving credit facility	10,800	-
Due for settlement after one year
Finance lease liabilities	2,116	836
Revolving credit facility	-	11,800

The group has the following undrawn borrowing facilities:

	2019	2019
	£'000	£'000
Expiring within one year	4,200	-
Expiring beyond one year	-	3,200

9.      Consolidated cash flow statement

	2019	2018
	£'000	£'000
Loss after tax - continuing operations	(389)	(1,365)
Loss after tax - discontinued operations	(1,203)	(3,723)
Adjustments for:
Finance costs - net	467	394
Depreciation of property, plant and equipment	1,377	1,378
Amortisation of intangible assets	2,390	2,584
Share option costs	100	(2)
Income tax credit	(126)	(589)
Profit on disposal of property, plant and equipment	-	(69)
Goodwill impairment	-	1,692
Changes in working capital:
Increase in inventories	(1,234)	(521)
Decrease / (increase) in trade and other receivables	402	(1,613)
(Decrease) / increase in trade and other payables	(1,156)	2,125
Cash flows from operating activities	628	291

10. Business disposals

On 4 June 2019, and as separately communicated to Shareholders on that date, the Group completed the disposal of the entire issued share capital of its subsidiary, PT Biogas Holdings Limited which was the holding company for the Group's Alternative Energy division, to Creation Capital Corp, a capital pool company listed on the TSX Venture Exchange.  The business was reported by the Group as the Alternative Energy segment.

Following the conclusion of the private placement by Creation Capital Corp, the final consideration for the sale of £10.1m comprised:

●      £2.0 million cash;

●      £2.0 million of Consideration Securities in Greenlane Renewables Inc ("Greenlane"), representing a 21% holding after satisfaction of certain fees and completion incentives; and

●      £6.1 million by way of a promissory note. The Promissory Note will (i) be denominated 50 percent in pounds sterling and 50 percent in Canadian dollars; (ii) mature 48 months from Completion; (iii) bear interest at the rate of 7% per annum and (iv) be secured by a pledge of all of the issued and outstanding Greenlane Ordinary Shares and all of the assets of Greenlane.

The table below summarises the profit on disposal of PT Biogas Holdings  Limited:

	£'000
Sale Proceeds	10,100
	________
Net book value of assets disposed of:
Goodwill	4,860
Property, plant & equipment	80
Intangible assets	2,682
Inventories	502
Trade and other receivables	2,055
Cash and cash equivalents	723
Trade and other payables	(4,222)
	________
Profit on disposal	3,420
Other Comprehensive Income
Exchange differences on translation of discontinued foreign operations	(325)
	________
Profit on disposal net of other comprehensive income	3,095
	________

11.    Contingent liabilities

Following the fatal accident at Chesterfield Special Cylinders Limited ("CSC") in June 2015, on 8 February 2019 upon the conclusion of their investigation, the Health and Safety Executive ("HSE") advised CSC that it intended to prosecute CSC in relation to the accident.  During the preliminary hearing held on 6 March 2019 at Sheffield Magistrates Court, CSC submitted a plea of not guilty to a charge brought by HSE pursuant to the Health and Safety at Work Act 1974.  The Company emphatically denied the charge brought by the HSE and the case was referred to Sheffield Crown Court and listed for trial. Trial proceedings concluded on 27 November 2019 and the jury delivered a guilty verdict pursuant to Section 2 of the Health and Safety at Work Act 1974. A sentencing hearing is expected to be scheduled in early 2020 and the financial penalty will be assessed and determined by the Court at that time.  The Company continues to take legal advice on this matter and further information in respect of the impact on the Company, and the Group's ability to continue as a going concern is set out the basis of preparation note.

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, which are publicly  available and can be found on the Sentencing Council's website at:

www.https://www.sentencingcouncil.org.uk/offences/crown-court/item/organisations-breach-of-duty-of-employer-towards-employees-and-non-employees-breach-of-duty-of-self-employed-to-others-breach-of-health-and-safety-regulations/,   set a range of fines dependent on the levels of harm and culpability, and the size of the Company being charged. These levels are assessed by the Judge when sentencing and not at the time of charges being brought. At this time, due to the nature of the sentencing guidelines, it is not possible to determine with any degree of certainty what financial penalties will be levied on CSC as a result of the guilty verdict. At such time as the quantum of the penalty is able to be reliably determined, further disclosure and provision will be made in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets".  Given the nature of the contingent liability the Directors' have determined that the exemption given in IAS 37 from providing all disclosures where disclosure can be expected to prejudice seriously the position of the entity in relation to the sentencing hearing is appropriate.

 

END

 

 

FR TRBFTMBABMJL