Pressure Technologies plc 2020 Preliminary Results

RNS Number : 6256L

Pressure Technologies PLC

14 January 2021

 

14 January 2021

Pressure Technologies plc

("Pressure Technologies" or "the Group")

2020 Preliminary Results

Pressure Technologies (AIM: PRES), the specialist engineering group, announces its preliminary results for the 53 weeks to 3 October 2020.

Financial Results

·	Revenue of £25.4 million (2019: £28.3 million)
·	Gross profit of £5.3 million (2019: £9.2 million)
·	Adjusted operating loss* of £2.4 million (2019: £2.2 million operating profit)
·	Loss before taxation of £20.0 million includes £13.9 million non-cash exceptional impairment (2019: £0.5 million operating loss)
·	Net operating cash inflow** of £ 1.7 million (2019: £0.6 million)
·	Total net debt*** reduced to £7.4 million (28 September 2019: £11.4 million)
·	Bank facility extended to 30 November 2022
·	Fundraising of £7.5 million (before expenses) from existing and new shareholders successfully completed in December 2020.

* operating loss excluding amortisation, impairments and other exceptional costs.

** before cash outflow for exceptional costs and excluding cash flows associated with discontinued operations

*** total net debt includes gross borrowings, asset finance leases, right of use asset leases, less cash and cash equivalents

Group Highlights

Results

·	Group revenue reflects challenging trading conditions, Covid-19 disruption and the deferral of a major defence contract from Q4 FY20 into Q1 FY21
·	Adjusted operating loss driven by lower than expected gross margins in both divisions, the deferral of major defence contract revenue in Chesterfield Special Cylinders (CSC) and poor operational performance in Precision Machined Components (PMC)
·	PMC restructuring, site consolidation and other cost-saving measures were taken promptly in the second half of the year to address the impact of worsening oil and gas market conditions
·	Impairment of PMC goodwill and other intangibles driven by challenging oil and gas market conditions, which are expected to continue throughout 2021
Strategic Progress
·	Board strengthened with a new Chairman and two new NEDs
·	Further strategic progress made in diversifying the PMC customer base and securing long-term strategic supply agreements with major OEMs for a wider range of specialised components
·	Diversification of end markets in CSC continues to reduce the historical dependence on the oil and gas sector, resulting in a strong order book for defence and nuclear power customers, with a second contract in excess of £3 million awarded by EDF Energy in September 2020 to supply several nuclear power stations in the UK with nitrogen storage packages for delivery through to mid-2021
·	Growth continues for CSC in the fast-developing hydrogen energy market, with five refuelling station contracts secured in December 2020 for existing and new customers with a total value of around £0.5 million
·	Fifth consecutive year of strong growth in CSC's Integrity Management services, despite delayed deployments throughout the year due to Covid-19 travel restrictions.  Positive outlook in defence, nuclear power, offshore services and hydrogen energy markets
·	Fundraising of £7.5 million before expenses in December 2020 provides a stronger balance sheet and the resources to capitalise on opportunities in the hydrogen energy market and to accelerate growth in Integrity Management services.

Chris Walters, Chief Executive of Pressure Technologies commented:

" Whilst these results reflect an extraordinarily challenging year, the operational changes and strategic progress made since 2019 put the Group in a stronger position to face the impact of the Covid-19 pandemic and depressed oil and gas market throughout FY20. I would like to thank all our employees for their continued hard work and commitment through this period.

We anticipate at least a further year of similarly challenging conditions in the oil and gas market, but the consolidation of sites, operational improvements, diversification of the customer base and new long-term strategic supply agreements position the Precision Machined Components division well for a return to profitability when market conditions recover.

Following a well-supported fundraising, we now have the balance sheet strength and resources to capitalise on the significant growth prospects for Chesterfield Special Cylinders in the hydrogen energy market and to accelerate growth in our Integrity Management services business.

First-quarter trading was in line with management expectations and we were delighted to secure five new hydrogen refuelling station contracts in December from a growing pipeline of opportunities with new and established customers.

Whilst we remain cautious regarding oil and gas market conditions, the increasing momentum in hydrogen and the strong orderbook for defence and nuclear customers underpin the Board's confidence in the outlook for 2021 and beyond."

ENDS

For further information, please contact:

Pressure Technologies plc Chris Walters, Chief Executive	Tel: [phone] [e-mail]
N+1 Singer  (Nomad and Broker) Mark Taylor / Carlo Spingardi	Tel: [phone]
Houston  (Financial PR and Investor Relations) Kate Hoare / Anushka Mathew / Ben Robinson	Tel: [phone]

Chairman's statement

Whilst 2020 has without doubt been a unique and challenging year, I have been impressed by and am proud of the response of the entire team at Pressure Technologies.

We entered this year with a clear vision for growth and strong momentum against our strategic plans and priorities. The Covid-19 pandemic has brought significant headwinds to our markets and operations, which is reflected in our financial performance, but I am pleased to report that we have made further progress against these plans and priorities.

The investments made since 2019 have underpinned growing diversification across both divisions this year. Strengthened engineering, sales and production capabilities have supported new customer acquisitions and further penetration in our target markets, helping place the Group in a stronger position to cope with the ongoing uncertainty, particularly in oil and gas markets.

From the onset of the pandemic in March, we were quick to take decisive action, prioritising the safety and wellbeing of our teams whilst ensuring business continuity and maintaining active communications with customers and colleagues across all our sites throughout the crisis. The investments made across our teams and operations, particularly in management, HR and IT have been fundamental to our ability to deliver this effective response and I would personally like to thank all of our colleagues for the leadership and commitment they have shown throughout the year.

Results

Covid-19 and the resulting macro-economic uncertainty has been felt in varying degrees across our markets throughout the year and it has also impacted performance. This has been compounded by slower operational progress than anticipated in some areas of the business.

Overall Group revenue decreased to £25.4 million (2019: £28.3 million) resulting in an adjusted operating loss for the year of £2.4 million (2019: £2.2 million adjusted operating profit). The Group made a loss before taxation of £20.0 million (2019: £0.5 million) which included amortisation, impairment and exceptional costs totalling £17.6 million.

The phasing of major defence contracts in our Chesterfield Special Cylinders ("CSC") division and the deferral of revenue and profit of a major contract from late in the year into FY21, overshadowed what was otherwise a good performance for CSC, particularly for our Integrity Management services business, which delivered its fifth consecutive year of growth. The diversification of end markets in CSC continues to reduce the historical dependence on the oil and gas sector and we have been particularly pleased with the good progress made in the rapidly developing hydrogen energy market, which presents significant growth opportunities for the Group. 

Precision Machined Components ("PMC") division delivered revenue of £14.2 million (2019: £14.4 million), but reported an operating loss of £0.7 million (2019: £1.9 million operating profit) driven by lower than expected gross margins and higher indirect overhead and depreciation costs resulting from the growth investment made since 2019. Poor operational performance in the first half of the year failed to improve in the pandemic-impacted second half.  This was compounded by a depressed oil price, which resulted in continued disruption and uncertainty for customers and the deferral of project spend, significantly impacting order intake. Prudent steps have been taken to stabilise and protect capability in this area of the business, ensuring PMC is positioned for market recovery.

Strengthened Balance Sheet

The Group has maintained tight control of costs throughout the year with proactive steps taken to preserve cash, including further site consolidation and management restructuring where appropriate. We are also pleased to have received strong support from our bank who, since the year end, has approved amendments to and an extension of the Group's Revolving Credit Facility (RCF) to the end of November 2022 with updated financial covenants.

On 18 December 2020, the Group was also pleased to successfully complete a £7.5 million (before expenses) fundraise from new and existing shareholders to support exciting growth opportunities for CSC in the hydrogen energy market and in the Integrity Management services business.  The fundraise also provides additional balance sheet strength for the Group.

Board

I was delighted to join the Board of Pressure Technologies in January 2020 and I look forward to working with the Executive team and my fellow Non-Executive Directors as the Group continues to make further progress against its strategy for growth. In March 2020, Neil MacDonald retired from the Board and I would like to thank Neil for his service to the Group since his appointment in June 2013.

In October 2020, we announced that Group CFO, Joanna Allen had stepped down from the Board after five years with the Group and that Group Financial Controller, James Locking had been appointed Interim Group Finance Director in a non-Board position.  I would like to thank Joanna for her contribution and service during her five years with the business.

As part of our plans to further strengthen the Board and reinforce governance and culture, the Group was pleased to announce the appointment of Tim Cooper as Non-Executive Director in January 2020 and the appointment of Mike Butterworth as Non-Executive Director and Chair of the Audit and Risk Committee in June 2020. Both Tim and Mike bring complementary skills and experience which will be invaluable as we grow the business and realise its significant potential.

Outlook

The Group's strategy remains focused on the diversification, continued development, and organic growth of both divisions. 

In PMC, our priority remains to stabilise and protect the consolidated operations, complete operational efficiency improvements and maintain service levels for our growing base of OEM customers, as we seek to conserve cash and recover profitability. 

CSC entered FY21 with a strong order book and we will continue to drive the operational improvements that underpin margin growth from established defence, energy and industrial contracts. The successful fundraising will enable us to strengthen our capabilities across this division to realise the significant growth opportunities, particularly in the exciting hydrogen energy market.

Sir Roy Gardner

Chairman

 

Business review

The important management and operational changes made since 2019 positioned us well to cope with the significant challenges faced over the past year.  I am extremely proud of our teams and their response during unprecedented circumstances and encouraged by the further progress made with organisational culture, this being key to continuous improvement and the delivery of sustainable growth.

Whilst slower than expected turnaround of operational performance and depressed oil and gas markets have impacted profitability, the strategic progress made to date across the Group is driving increased diversification in the customer base, positioning the business for sustainable long-term growth and ensuring that we are well placed to capitalise on exciting opportunities in some of our key markets.

Performance

Overall Group revenue for the year was £25.4 million (2019: £28.3 million), down 10% and reflecting challenging trading conditions, Covid-19 disruption and the deferral of revenue and profit for a major defence contract into FY21.

£ million revenue	2020	2019	2018	2017
Group Revenue	25.4	28.3	21.2	18.8
Oil & Gas	14.9	16.3	12.4	10.6
Defence	5.1	9.1	6.4	6.4
Industrial Gases	5.2	2.2	2.4	1.8
Hydrogen Energy	0.2	0.7	-	-
Group Operating (Loss) / Profit before amortisation, impairments and other exceptional charges	(2.4)	2.2	1.0	1.6
Group Loss before taxation	(20.0)	(0.5)	(1.7)	(1.4)

An adjusted operating loss of £2.4 million (2019: £2.2 million operating profit) was driven by lower than expected gross margins in both divisions, the deferral of revenue relating to a major defence contract into FY21 in CSC and poor operational performance in PMC. The Group made a loss before taxation of £20.0 million (2019: £0.5 million) which included amortisation, impairment and exceptional costs totalling £17.6 million.

Divisional Review

Chesterfield Special Cylinders (CSC)

£ million revenue	2020	2019	2018	2017
Revenue	11.2	13.9	9.9	8.4
Oil and Gas	1.0	2.2	1.4	0.8
Defence	5.1	9.1	6.4	6.4
Industrial Gases	4.9	1.9	2.1	1.2
Hydrogen Energy	0.2	0.7	-	-
Gross Margin	26%	36%	35%	41%
Operating (Loss) / Profit before amortisation, impairments and other exceptional charges	(0.1)	2.1	1.1	1.1
(Loss)/profit before taxation	(1.0)	2.1	1.0	1.0
Return on Revenue	0%	15%	11%	13%

Divisional revenue for the year was down 19% to £11.2 million (2019: £13.9 million), predominantly due to the phasing of a major defence contract into FY21 which drove lower overall gross margin performance. Overall divisional gross margin decreased to 26% (2019: 36%), resulting in an operating loss of £0.1 million (2019: £2.1 million operating profit) and a return on revenue of 0% (2019: 15%).

Total defence market revenue decreased by 44% to £5.1 million representing 46% of divisional sales. Revenue for the supply of ultra-large cylinders to UK defence contracts reduced to £3.5 million down by 15% (2019: £4.1 million) with the first deliveries to the UK Ministry of Defence's Dreadnought class submarine programme made during this period for long-standing customer BAE Systems.  A major order covering the long lead time raw material milestone for the second Dreadnought boat in the series was secured in June 2020, but the revenue and profit for this order was deferred from the fourth quarter of FY20 into the first quarter of FY21.

Revenue for export naval contracts decreased by 50% to £1.6 million (2019: £3.2 million). Revenue includes bespoke, safety critical systems supplied to Naval Group for French and Brazilian naval submarine programmes. New contracts to supply highly specialised cylinders for early warning radar systems were secured with Thales and the UK Ministry of Defence for delivery in FY21.

Despite several contracts secured in late 2019, demand for oil and gas related projects has deteriorated sharply due to depressed oil prices and reduced capital spend in the sector, with several ultra-large cylinder prospects being deferred to late 2021 and beyond. Total oil and gas market revenue decreased by 55% to £1.0 million (2019: £2.2million), representing 9% of divisional sales and reflecting the progress CSC continues to make in reducing its historical dependence on the oil and gas sector, with the diversification of end markets. Delivery was successfully completed for the semi-submersible drilling unit projects in Singapore for new customer MH Wirth.

Industrial gases market revenue increased significantly to £4.9 million (2019: £1.9 million), representing 44% of the divisional revenue, with the successful completion of the first contract with EDF Energy for the supply of high-pressure nitrogen storage solutions to nuclear power stations in the UK, including Heysham, Torness and Hartlepool sites. As previously announced, a second contract in excess of £3 million was awarded by EDF Energy in September 2020 to supply several other nuclear power stations in the UK with a series of nitrogen storage packages for delivery through to mid-2021. This second order demonstrates the strength of relationship with EDF Energy and the expertise of CSC in producing bespoke seismically qualified modular designs for these safety-critical projects. In May 2020, CSC was also pleased to be awarded a £0.6 million revenue contract by new customer, Parker, to provide ultra-large cylinders for a major wastewater treatment project in Abu Dhabi. This significant contract represents a new market for CSC's ultra-large cylinders and through-life support services.

Opportunities remain strong in the fast-developing hydrogen energy market, with CSC completing three contracts for transport refuelling high-pressure storage for new customers including ITM Power, Haskel Hydrogen Systems and McPhy Energy, delivering revenues of £0.2 million. Whilst this represented just 1% of divisional sales in the year, it demonstrated the design, engineering and through-life support capabilities that uniquely position CSC with major players in this market. As further testament to this, CSC signed a five-year framework agreement with Shell Hydrogen in the first half of the year, becoming the approved supplier of Type 1 steel cylinders to Shell-branded hydrogen refuelling stations across Europe.

Despite Covid-19 travel restrictions from March onwards, Integrity Management services delivered a fifth consecutive year of strong growth, with total revenue up a record 93% to £2.3 million (2019: £1.2 million). Notwithstanding the deferral of several UK deployments, revenue from in-situ inspection and recertification projects for UK submarine and surface vessel fleets primarily drove this growth, more than doubling to £1.4 million. This reflected support for critical infrastructure projects during the Covid-19 outbreak, with successful revalidation of high-pressure systems onboard aircraft carriers HMS Queen Elizabeth and HMS Prince of Wales. Overseas non-naval revenues declined by 50% to £0.1 million and despite new contract wins for in-situ revalidation projects on offshore production units and diving support vessels in Azerbaijan and Dubai, Covid-19 enforced travel restrictions caused disruption and delays, with the deferral of several deployments into 2021.

Investment plans for the division were delivered during the year, with a second advanced machining centre becoming operational in July, delivering substantial improvements to efficiency and quality performance. The delivery and commissioning of an advanced robotic ultrasonic test facility was delayed due to Covid-19 restrictions, but installation commenced in November and the system will become fully operational early in FY21. 

Precision Machined Components (PMC)

£ million revenue	2020	2019	2018	2017
Revenue	14.2	14.4	11.2	10.4
Oil and Gas	13.9	14.0	11.0	9.8
Industrial Gases	0.3	0.4	0.2	0.6
Gross Margin	17%	29%	33%	35%
Operating (Loss) / Profit before amortisation, impairments and other exceptional charges	(0.7)	1.9	1.5	1.8
(Loss)/profit before taxation	(4.3)	(0.3)	(0.3)	0.1
Return on Revenue	(5)%	13%	13%	18%

Although divisional revenue for the year was broadly unchanged on the prior year at £14.2 million (2019: £14.4 million), PMC reported an operating loss of £0.7 million (2019: £1.9 million operating profit), driven by lower than expected gross margins, as poor operational performance in the first half of the year failed to improve in the second half.  Operating profit was further impacted by higher indirect overhead and depreciation costs resulting from the growth investment made since 2019, whilst restructuring and site consolidation steps taken in the second half had only a minimal impact on the full year costs.

Overall divisional gross margin reduced to 17% (2019: 29%), impacted by delayed output of new large complex components and the late commissioning of new machining centres in the first half of the year and by the onboarding of new customers, Covid-19 disruption across the supply chain and lower utilisation levels in the second half. Return on revenue was (5)% compared to 13% last year.

The depressed oil price has resulted in continued disruption and uncertainty for our oil and gas OEM customers and the deferral of project spend.  Consequently, order intake in the second half fell sharply and the divisional order book at the start of FY21 was less than half the pre-pandemic value six months earlier. Performance and market outlook also resulted in an impairment review of the goodwill and other intangible assets of the PMC division as they relate to Al-Met, Quadscot, Roota and Martract subsidiaries, acquired by the Group between 2010 and 2016. Lower than previously considered growth rates and higher risk-factored discount rates applied to future cash flows have resulted in a non-cash exceptional impairment to goodwill and other intangible assets of £13.9 million.

Significantly higher indirect costs and depreciation following two years of growth investment were not fully offset by the proactive steps taken early in the second half of the year to limit the impact of trading conditions on the division. These actions included closure of the persistently loss-making Quadscot operation, management restructuring and the implementation of other cost saving and cash preservation measures, whilst seeking to protect core capability.

Whilst the consolidation of the Quadscot operation and order book into Roota through the peak of Covid-19 disruption took longer than expected and adversely impacted divisional margins and customer delivery schedules, this transition has now resulted in a lower cost base and increased utilisation of capacity across the remaining sites.

Further progress was made during the year with diversifying the customer base and extending our range of precision machined components for specialised oil and gas applications. This includes long-term strategic supply agreements being signed or under negotiation with key OEM customers, demonstrating their confidence in PMC's products and service levels as they seek to consolidate their approved supplier lists.

A stronger sales team and maturing sales processes have underpinned increased sales effectiveness and better customer relationship management. The investment in new production management systems and the use of data to drive production scheduling and customer reporting is starting to deliver improvements, most notably to on-time delivery performance. The investment in production engineering capability and new advanced machining centres have also helped deliver significant time and cost savings in the production of familiar and new component designs, which will contribute to improved margins and competitiveness through shorter lead times.

Reliance on the division's top three customers by revenue has also reduced from 78% to 69% demonstrating further progress in reducing customer concentrations. Diversification of product scope also continues, with a far broader range of components now being delivered to established and newly acquired customers.

With the current low oil price impacting demand for drilling and exploration projects, we have increased our focus on decommissioning opportunities and accelerated our evaluation of new geographies and adjacent markets, such as renewable energy, nuclear power and defence, where we have an established customer base with CSC.

The operating result in the period was disappointing, however we continue to make strategic progress across this division as changes made over the past year deliver operational improvements. The divisional leadership structure and new management appointments are driving important cultural change that is more focused on performance and customer service.

Our Strategy

In March 2019, we set out a vision for growth in three phases and were pleased with the steady progress being made in the first two phases.  However, the Covid-19 pandemic significantly impacted the business environment, including working conditions, operational performance, end markets and the global economy.  We have adapted and remain ready to further adjust our focus and resources to protect the business, progress our strategy and take advantage of future opportunities.

The Covid-19 pandemic and slower than expected improvement in operational performance have contributed to delayed progress in Phase 1 - Refocus, which we now expect to extend to the end of 2021, in line with the anticipated slow recovery of oil and gas market conditions and the impact of this on our PMC division.  We expect Phase 2 - Deliver Organic Growth, to accelerate through opportunities for CSC in the fast-developing hydrogen energy market, driving the need for investment that was supported by the successful fundraising in December 2020. 

Outlook

Chesterfield Special Cylinders

Significant expansion and diversification of CSC's customer base was achieved this year especially into the hydrogen energy transport refuelling market and nuclear power generation market. Strategic partnerships across the supply chain have enabled significant reduction in lead times and the ongoing deepening of existing customer relationships is a clear testament to the strategic progress made by the division in a difficult operating and trading environment.

Trading in the first few months of FY21 has continued in line with our expectations. The order book for the year ahead remains strong, with higher-margin projects, including the deferred BAE Systems contract, weighted to the first half of the year.

CSC will continue to drive the operational improvements that underpin margin growth from established defence and industrial contracts, while strengthening capability and readiness for further growth in Integrity Management services.  Periodic inspection regimes will require product revalidations as current travel restrictions are lifted and the Group expects to see continued growth in Integrity Management services in defence, nuclear power generation and hydrogen energy sectors, where risk management and asset availability are paramount.

Hydrogen energy storage remains an area of strategic focus and significant future growth potential for the Group.  The progress already made in this rapidly developing market is expected to continue as governments increasingly acknowledge the role of hydrogen in the overall energy mix, with its contribution to meeting net zero carbon targets in transportation and in the decarbonising industry.  In addition to the transport refuelling station projects successfully completed or currently in production, CSC has a strong pipeline of opportunities with new and existing partners, including the five-year framework agreement with Shell Hydrogen.  These opportunities are supported by the ongoing development of products and services to reduce through-life cost and risk for the operators of static and mobile hydrogen storage. Whilst progress to date has been encouraging, hydrogen energy is still a developing technology and, as with all immature market sectors, there inevitably remains uncertainty as to the timing and scale of growth.

In December 2020, we were pleased to secure contracts for five further hydrogen refuelling stations with existing customer Haskel, new customer Framatome and a major new US customer for their European projects.

Precision Machined Components

Our priority remains to stabilise and protect the consolidated operations, complete operational improvements and maintain service levels for our growing base of OEM customers, as we seek to conserve cash and recover profitability.  We anticipate at least a further year of challenging trading conditions in a depressed oil and gas market and will continue to appraise opportunities to diversify our specialist engineering capability in other sectors.

Fundraising

On 18 December 2020 the Group was pleased to successfully complete a £7.5 million (before expenses) fundraise from new and existing shareholders to support exciting growth opportunities for CSC in the hydrogen energy market and in the Integrity Management services business.

The investment provides us with the resources to capitalise on the significant growth prospects in the hydrogen energy market and to accelerate growth in our Integrity Management services business.  The stronger balance sheet will also provide resilience through the difficult oil and gas market trading conditions, demonstrate strength when developing partnerships and negotiating major contracts, and provide flexibility to take advantage of emerging opportunities.

Chris Walters

Chief Executive

Our Covid-19 response

1.  Business as usual with caution and all sites operational.

Notwithstanding the many challenges faced on account of the pandemic, the businesses worked effectively to ensure business continuity given our status as a supplier to customers who support UK Critical National Infrastructure and Defence Contracts.

Despite a certain level of operational disruption during the lockdown period in the UK, staff absence levels stayed relatively low, enabling us to keep all sites open and operational, with staff working on the basis of 'business as usual, with caution'.

We continue to support our customers, maintaining close communication and remaining focused on delivering orders safely and to the best of our abilities.

The oil and gas markets remain depressed, causing ongoing uncertainty for our oil and gas customers in particular, some of whom have deferred project spend, causing pricing pressure throughout the supply chain. We remain focused on the diversification of our customer portfolio to mitigate this, in line with our growth strategy. Integrity Management Services continues to be impacted by the travel restrictions, especially with overseas non-naval contracts, although some UK based naval contracts remained on track due to critical defence and infrastructure requirements.

2.  Keeping employees safe whilst supporting UK Critical National Infrastructure

At the onset of the Covid-19 pandemic in March, we undertook swift, decisive actions to protect the health, safety and wellbeing of our teams.

We wrote and implemented specific precautions, policies and guidelines which allowed us to adapt working practices to meet UK government guidelines on workforce protection, enabling social distancing across all our facilities, encouraging working from home wherever roles permit, and safeguarding employees who met vulnerable and extremely vulnerable category criteria.

During this difficult period, we successfully maintained regular, open communications with colleagues working both on site and at home, significantly enhanced due to the investments made in the last year in our central group functions including Human Resources and IT infrastructure.

3.  Protecting our financial strength

To protect our financial strength, we took a number of prudent measures to stabilise operations, manage cost and conserve cash and core capability.

We enjoy a strong and supportive relationship with our bank and post the financial year end were pleased to secure amendments and an extension to our facility to 30 November 2022 with updated financial covenant targets. In December 2020, we also successfully completed a fundraising from new and existing shareholders to raise £7.5 million (before expenses).

We continue to monitor the Covid-19 situation closely and will adapt as necessary in order to continue servicing our customers whilst protecting our people.

Chris Walters

Chief Executive

Financial review

Highlights

Group Revenue Down 10% to £25.4m (2019: £28.3m)	Group Adjusted operating loss* at £2.4m (2019: £2.2m operating profit)	Group loss before taxation at £20.0m (2019: £0.5m operating loss)
Return on Revenue** down 17.3ppt to -9.4% (2019: 7.9%)	Net operating cash inflow*** £1.7m (2019: £0.6m)	Closing Total Net Debt**** £7.4m (2019: £11.4m)

* Operating loss excluding amortisation, impairments and other exceptional costs.

** Adjusted operating loss divided by revenue

*** before cash outflow for exceptional costs and excluding cash flows associated with discontinued operations

**** total net debt includes gross borrowings, asset finance leases, right of use asset leases, less cash and cash equivalents

Our financial priority this year has been to minimise the impact of Covid-19 on the Group with proactive measures to reduce costs and to conserve cash while continuing to invest in making further strategic progress against our focus areas for growth.

Tougher trading conditions and Covid-19 disruption, which particularly impacted the Precision Machined Components division (PMC) as well as the deferral of a defence contract with Chesterfield Special Cylinders (CSC) into the year ended 2 October 2021 resulted in a reduction in Group revenue for the year to £25.4 million (2019: £28.3 million) and an adjusted operating loss for the year of £2.4 million (2019: £2.2 million operating profit). The Group made a loss before taxation of £20.0 million (2019: £0.5 million), which included amortisation, impairment and other exceptional costs of £17.6 million.

However, the investments made in the previous year in equipment, infrastructure and technology to add capacity and capability have been instrumental in supporting business continuity across our operations during the Covid-19 crisis.

CSC revenue decreased by 19% to £11.2 million (2019: £13.9 million) and the division made an adjusted operating loss of £0.1 million (2019: £2.1 million operating profit).  PMC revenue decreased by 1% to £14.2 million (2019: £14.4 million) and the division made an adjusted operating loss of £0.7 million (2019: £1.9 million operating profit).

The current trading performance and medium-term outlook of our OEM customers regarding the depressed oil and gas market resulted in an impairment review of the goodwill and other intangible assets of the PMC division as they relate to Al-Met, Quadscot, Roota and Martract subsidiaries, acquired by the Group between 2010 and 2016. Lower than previously considered growth rates and higher risk-factored discount rates, than assumed at the half year, applied to future cash flows have resulted in a non-cash exceptional impairment to goodwill and other intangible assets of £13.9 million.  In addition, in the company only accounts of Pressure Technologies plc a write down of £26.5 million was made with respect to the valuation of its investment in PT Precision Machined Components Limited, the holding company which owns the subsidiary companies that comprise the operations of the PMC division.

On 3 October 2020, total net debt (which now includes right of use asset leases following the adoption of IFRS 16) reduced to £7.4 million (28 September 2019: £11.4 million).  The Group's £12.0 million RCF was drawn at £6.8 million (28 September 2019: £10.8 million). Cash and cash equivalents increased to £3.4 million (28 September 2019: £2.2 million) taking net RCF debt down to £3.4 million (28 September 2019: £8.6 million).  Lease liabilities on 3 October 2020 increased to £4.1 million (28 September 2019: £2.8 million), mainly as a result of right of use asset liabilities brought in under the adoption of IFRS 16. 

The significant reduction in total net debt was driven principally by the receipt in February 2020 of a £2.1 million repayment of the Greenlane Renewables Inc. Promissory Note with associated interest and the receipt in June and July 2020 of £3.1 million from the sale of the shareholding in Greenlane Renewables Inc.  Receipt of the outstanding Promissory Note balance of £3.1 million is expected in June 2021.

The Group's existing RCF of £12 million at the year end, was put in place in December 2019 for two years through to December 2021. In December 2020 the Group extended its facility through to 30 November 2022 with a £9 million facility through to 1 July 2021 and then £7 million for the remainder of the term. 

In addition, the Group undertook a fundraising through the issue on 18 December 2020 of 12,471,998 new ordinary shares which raised cash proceeds, net of expenses, of approximately £7.0 million. 

Trading results

CSC

Revenue decreased by 19% on the prior year primarily due to the phasing of major defence contracts, which was further compounded by the deferral of revenue on a significant defence contract from Q4 FY20 into Q1 FY21.

As a result, gross profit has decreased to £2.9 million (2019: £5.0 million), with a 10.0ppt reduction in gross margin.

An adjusted operating loss before amortisation, impairments and other exceptional costs of £0.1 million resulted in FY20 (2019: £2.1 million adjusted operating profit) and there has been a 15.1ppt decrease in the return on revenue in the year to 0.0% (2019: 15.1%).

Contracts that were categorised as 'recognised over time' and still in progress at the end of the year had a value of £6.5 million of future revenue on these contracts relating to as yet unfulfilled performance obligations which are due for delivery in 2021.

PMC

PMC revenue has decreased just over 1% primarily due to the deterioration in oil and gas markets as a result of the Covid-19 pandemic. The division also saw lower than expected gross margins as poor operational performance in the first half of the year failed to improve in the second half of the year.

Gross profit decreased by 41.4% and there was a 11.8ppt reduction in gross margin, compared to 2019 at 29.1%, primarily due to the sharply reduced order intake in the second half of the year as our oil and gas OEM customers deferred project spend against the backdrop of a depressed oil price causing continued uncertainty and disruption in the market. Margins were also impacted by the longer than expected consolidation process of the Quadscot operation and order book into our Roota facility, although we have now made good progress in lowering the cost base and increasing capacity utilisation across other sites.

The division reported an adjusted operating loss before amortisation, impairments and other exceptional costs of £0.7 million which represents a return on revenue of -4.6%, a 17.6ppt reduction from 2019.

Central costs

Unallocated central costs (before other exceptional charges) were £1.7 million (2019: £1.7 million). The profit on the sale of the investment in PT US Inc. and its 40% holding in Kelley GTM and its assets totalling £0.3 million has been treated as an exceptional Finance Cost and is shown in Note 2 to these financial statements.

In respect of the Group's various share option plans there was a net cost in the year of £0.1 million, (2019: net cost of £0.1 million).

Asset impairments and amortisation

The Group tests annually for impairment, or more frequently if there are indicators that goodwill, other intangibles and tangible fixed assets might be impaired. The occurrence of the Covid-19 pandemic is a global issue affecting every single business sector and every country to some degree. It has already had a significant impact on the global economy, and its impacts are expected to continue for the foreseeable future. Consequently, the impact of the pandemic is considered to be an indicator that the carrying value of our intangible and tangible assets in one of the Group's cash generating units (CGU) - the Precision Machined Components (PMC) division - is impaired.  In light of the pandemic and the very difficult trading conditions and outlook for the oil and gas market, PMC's key end-market, the Group has considered a range of economic conditions for the sectors that may exist over the next three years.

These economic conditions, together with reasonable and supportable assumptions, have been used to estimate the future cash inflows and outflows for the PMC CGU over the next three years.

The review concluded that an impairment was required of £13.9 million, comprising £9.5 million of goodwill, £2.1 million of intellectual property, £2.2 million of non-contractual customer relationships and £0.1 million of software items, which has therefore been included, as a non-cash exceptional item, in these financial statements.  Amortisation costs were £2.0 million (2019: £1.8 million) and have also been treated as a non-cash exceptional item. 

Disposal of investments and carrying value of other financial assets

Greenlane Renewables Inc:

On 3 July 2020 the Group entered into a Framework Agreement with Greenlane Renewables Inc. ("Greenlane"), Creation Partners LLP ("Creation") and Brad Douville (the "Framework Agreement") and immediately sold a total of 7,663,920 common shares and the underlying common shares of 5,094,765 share purchase warrants in Greenlane Renewables Inc. (the "PT Securities"). The PT Securities had been issued to PT in connection with the disposal in the prior year of its wholly owned subsidiary PT Biogas Holdings Limited.  Together with the sale of 2,525,610 common shares in Greenlane on 10 June 2020, the Group realised cash proceeds of £3.1 million from these sales.

As a result of the Framework Agreement, Greenlane's outstanding principal on the Promissory Note owed to the Group (the "Promissory Note") was reduced to approximately £3.1 million and the maturity date was advanced from 3 June 2023 to 30 June 2021.

The profit on sale of the shareholding of £1.9 million and the consequent modification in the value of the Promissory Note of £1.0 million have been treated as exceptional Finance Costs and are shown in note 2 to these financial statements.

The Group's only remaining interest in Greenlane Renewables Inc is the Promissory Note, details of which can be found in Note 9 to these financial statements.

PT US Inc:

At the beginning of the year the Group indirectly held a 40% investment in Kelley GTM, LLC, through its 100% subsidiary PT US Inc.  The principal activity of Kelly GTM, LLC is the manufacture of high-pressure vessels for gas transport solutions. Kelley GTM, LLC is based in Amarillo, Texas.  The investment in Kelley GTM, LLC was fully written down in the period ended 3 October 2015.

In May 2020 the Group sold the entire share capital of PT US Inc for a consideration of US$50,000 along with 5 GTM transport modules for US$250,000. We therefore no longer have any interests in Kelly GTM, LLC.  The total profit on sale of this associate has been treated as exceptional Finance Costs and is shown in note 2 to these financial statements.

Other exceptional items

Reorganisation and redundancy costs in the year were £0.4 million (2019: £0.5 million), which predominantly relate to termination payments made on the resignation of the previous CFO and divisional PMC management reorganisation costs.

An inventory write off in PMC relating to obsolete stock items totalled £0.5 million and other head office costs totalled £0.4 million in the year.

The Group closed its Quadscot operation in June 2020 after five consecutive years of loss making and closure costs both incurred and provided for, totalled £0.7 million in the year.

On 26 November 2019, the Group, announced that its subsidiary Chesterfield Special Cylinders ("CSC") had been found guilty of a charge brought by the Health & Safety Executive ("HSE") pursuant to Section 2 of the Health and Safety at Work Act 1974 following a fatal accident in June 2015.  On 13 January 2020, the Group was sentenced to a fine of £0.7 million along with prosecution costs of £0.2 million. The fine is due to be paid over five six-monthly instalments of £140,000 commencing on 31 January 2021.

Taxation

The tax credit for the year was £1.1 million (2019: £0.1 million).

The current year tax charge has benefitted from a £0.1 million overprovision in respect of the prior year.  Deferred tax reflects a £1.0 million credit relating to the charge in respect of the impairment of intangible assets.

R&D tax benefits in respect of 2020 are expected to be around £1.1 million (2019: £1.2 million).

Corporation tax refunded in the year totalled £0.2 million (2019: £0.2 million), which relates to the UK. Taxes relating to overseas territories are 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 Canadian 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 in the prior year the overall exposure of the Group to currency fluctuations in respect of trading has reduced considerably.  The Group is however more exposed to the transactional impact of the Canadian Dollar in respect of the Greenlane Renewables Promissory Note, 50% of which is denominated in that currency.  Where appropriate, and where the timing of future cash flows are able to be reliably estimated, forward contracts are taken out to cover exposure. 

As at 3 October 2020 there were no forward contracts in place (2019: none).

Financing, cash flow and leverage

Operating cash outflow before movements in working capital was £3.3 million (2019: £2.6 million inflow).  After a net working capital inflow of £5.0 million (2019: £2.0 million outflow), cash generated from operations was £1.7 million (2019: £0.6 million).  Key movements within working capital include the timing flows of major CSC contracts including received milestone payments with respect to the Dreadnought Boatset 2 Programme materials, whereby supplier payments moved to after the year end. In addition, the inflow from net working capital includes around £1.0 million from deferred payments of PAYE and VAT to HMRC, due to Covid-19 relief, across the Group that have been moved into 2021 to be paid on an agreed instalment timescale. 

Cash outflow in the year in respect of other exceptional costs (see Note 5) was £1.5 million (2019: £1.6 million). This excludes the inventory write down and asset impairments which were non cash-flow exceptional items and the HSE fine none of which was paid in the year but deferred to future periods for payment.

During the year the Group received £5.2 million exceptional cash inflow relating to its interests in Greenlane Renewables Inc. following the sale for £3.1 million of its entire holding of common shares and underlying share purchase warrants and a repayment of £2.1 million of the Promissory Note. 

Total net debt, including right of use asset leases following the adoption of IFRS 16, was £7.4 million (2019: £11.4 million), the decrease driven primarily by exceptional receipts of £5.2 million from the Group's interests in Greenlane Renewables Inc. and other working capital inflows. This enabled the repayment of £4.0 million of the Group's £12 million revolving credit facility ("RCF") reducing drawn debt to £6.8 million at the year end (2019: £10.8 million).

The decrease in adjusted EBITDA more than off-set the decrease in net debt which means the Net Debt to Adjusted EBITDA leverage ratio included as a covenant in the RCF facility increased to 3.8:1 at 3 October 2020 (2019: 1.8:1).  The Group's existing RCF at the year end, was put in place in December 2019 for two years through to December 2021.  In December 2020 the Group extended its facility through to 30 November 2022 with a £9 million facility through to 1 July 2021 and then £7 million for the remainder of the term. 

The key financial covenant in the amended RCF remains the leverage covenant, which is tested quarterly, and has a maximum permitted net debt to adjusted EBITDA ratio of 5.5:1 for the two quarterly test dates of December 2020 and March 2021, a ratio of 3.5:1 in June 2021 reducing to a maximum of 3:1 by September 2021 and for the remainder of the term. Following the fundraising in December 2020 (see note 14), is it expected that these covenants may be subject to amendment following discussions with the bank. 

(Loss)/earnings per share and dividends

Adjusted loss per share was 6.4 pence (2019: 7.8 pence adjusted earnings per share). Basic loss per share was 101.5 pence (2019: 2.1 pence).

No dividends were paid in the year (2019: nil) and no dividends have been declared in respect of the year ended 3 October 2020 (2019: nil).  Distributable reserves in the parent company decreased as a result of the write down of the investment in PT PMC Limited and as at the year end are negative £20.6 million (2019: £6.8 million positive reserve).

Pressure Technologies plc, the company, has £26.2 million of share premium as at year end.  On 17 December 2020, the Company received shareholder approval to convert the share premium, under a capital reduction, into a distributable reserve.  This process requires Court Approval.  An application to the Courts has been made but the timing of the process is currently uncertain.

Statement of financial position

Goodwill and intangible assets (at net book value) decreased by £15.8 million to £0.3 million (2019: £16.1 million) principally as a result of the £13.9 million impairment of the PMC CGU.  Amortisation in the year was £2.0 million (2019: £1.8 million).

The consolidation of the Quadscot operation and order book into the Roota Engineering facility took place in June 2020.  The property at Quadscot is owned and was marketed for sale with immediate effect.  As at 3 October 2020 the Group was expecting to sell all 3 conjoined units, either separately or as a whole, within the next financial year and therefore in the statement of financial position is showing the market value of the properties of £0.6 million as an "Asset held for sale" under current assets.

Net current assets (being current assets less current liabilities), excluding RCF borrowings, decreased to £8.5 million (2019: £9.1 million). Non-current liabilities of £10.9 million have increased by £7.1 million, primarily as a result of £6.8 million of RCF borrowings.  In the prior year the RCF borrowings were classified as current liabilities.  However, following the recent renegotiation of the RCF which now extends to 30 November 2022, they are classified as non-current liabilities as at 3 October 2020.

Net assets decreased by 59% to £13.3 million (2019: £32.1 million) and net asset value per share decreased to 72 pence (2019: 176 pence).

Chris Walters

Director

 

Consolidated statement of comprehensive income

For the 53 week period ended 3 October 2020

	Notes		53 weeks ended 3 October 2020	52 weeks ended 28 September 2019
			£'000	£'000
Revenue	1		25,403	28,291
Cost of sales			(20,054)	(19,119)
Gross profit			5,349	9,172
Administration expenses			(7,728)	(6,938)
Operating (loss)/profit before amortisation, impairments and other exceptional costs			(2,379)	2,234
Separately disclosed items of administrative expenses:
Amortisation	4		(1,958)	(1,832)
Impairments	4		(13,878)	-
Other exceptional charges	5		(2,751)	(450)
Operating loss			(20,966)	(48)
Finance income/(costs)	2		977	(467)
Loss before taxation	3		(19,989)	(515)
Taxation	6		1,113	126
Loss for the period from continuing operations			(18,876)	(389)
Discontinued operations
Loss for the period from discontinued operations			-	(1,203)
Loss for the period attributable to the owners of the parent			(18,876)	(1,592)
Other comprehensive income to be reclassified to profit or loss in subsequent periods: Currency exchange differences on translation of foreign operations			(13)	(140)
Exchange differences on translation of discontinued foreign operations			-	325
Total Other Comprehensive Income			(13)	185
Total comprehensive expense for the period attributable to the owners of the parent			(18,889)	(1,407)
Basic loss per share
From continuing operations	7		(101.5)p	(2.1)p
From discontinued operations	7		-	(6.5)p
From loss for the period			(101.5)p	(8.6)p
Diluted loss per share
From continuing operations	7		(101.5)p	(2.1)p
From discontinued operations	7		-	(6.5)p
From loss for the period			(101.5)p	(8.6)p

Consolidated statement of financial position

As at 3 October 2020

	Notes	3 October 2020	28 September 2019
		£'000	£'000
Non-current assets
Goodwill	8	-	9,510
Intangible assets		325	6,598
Property, plant and equipment		14,910	14,042
Deferred tax asset		464	278
Other financial assets	9	-	7,350
		15,699	37,778
Current assets
Inventories		5,487	5,115
Trade and other receivables		11,543	9,541
Cash and cash equivalents		3,416	2,208
Asset held for sale		580	-
Other financial assets	9	3,074	-
Current tax		-	95
		24,100	16,959
Total assets		39,799	54,737
Current liabilities
Trade and other payables		(14,370)	(7,360)
Borrowings - revolving credit facility	10	-	(10,800)
Lease Liabilities	11	(1,209)	(656)
		(15,579)	(18,816)
Non-current liabilities
Other payables		(538)	(158)
Borrowings - revolving credit facility	10	(6,773)	-
Lease Liabilities	11	(2,843)	(2,116)
Deferred tax liabilities		(752)	(1,561)
		(10,906)	(3,835)
Total liabilities		(26,485)	(22,651)
Net assets		13,314	32,086
Equity
Share capital		930	930
Share premium account		26,172	26,172
Translation reserve		(293)	(280)
Retained earnings		(13,495)	5,264
Total equity		13,314	32,086

Consolidated statement of changes in equity

For the 53 week period ended 3 October 2020

	Notes	Share capital	Share premium account	Translation reserve	Retained earnings	Total equity
		£'000	£'000	£'000	£'000	£'000
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 expense: Exchange differences on translating foreign operations		-	-	(140)	-	(140)
Other comprehensive income: Exchange differences on translation of discontinued foreign operations		-	-	325	-	325
Total comprehensive income/(expense)		-	-	185	(1,592)	(1,407)
Balance at 28 September 2019		930	26,172	(280)	5,264	32,086
Share based payments		-	-	-	117	117
Transactions with owners		-	-	-	117	117
Loss for the period - continuing operations		-	-	-	(18,876)	(18,876)
Other comprehensive expense: Exchange differences on translating foreign operations		-	-	(13)	-	(13)
Total comprehensive expense		-	-	(13)	(18,876)	(18,889)
Balance at 3 October 2020		930	26,172	(293)	(13,495)	13,314

Consolidated statement of cash flows

For the 53 week period ended 3 October 2020

	Notes	53 weeks ended 3 October 2020	52 weeks ended 28 September 2019
		£'000	£'000
Operating activities
Cash flows from operating activities	13	1,707	628
Finance costs paid		(188)	(464)
Income tax refunded		213	159
Cash flows from discontinued operations		-	(2,534)
Net cash inflow/(outflow) from operating activities		1,732	(2,211)
Investing activities
Proceeds from sale of financial assets held at FVTPL		3,145	-
Proceeds from sale of associate		297	-
Proceeds from sale of fixed assets		268	-
Proceeds from repayment of Promissory Note		2,000	-
Purchase of property, plant and equipment		(2,103)	(3,693)
Cash inflow on disposal of subsidiaries net of cash disposed of		-	1,277
Net cash from/(used in) investing activities		3,607	(2,416)
Financing activities
Repayment of borrowings		(4,250)	(1,000)
Proceeds from new borrowings		223	-
Repayment of lease liabilities		(1,301)	(307)
Proceeds from asset financing		1,197	2,002
Net cash (used in)/from financing activities		(4,131)	695
Net increase/(decrease) in cash and cash equivalents		1,208	(3,932)
Cash and cash equivalents at beginning of period		2,208	6,140
Cash and cash equivalents at end of period		3,416	2,208

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 2019 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 3 October 2020 was approved by the Board on 13 January 2021 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 3 October 2020 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 28 September 2019 have been delivered to the Registrar of Companies.

Going concern

The financial statements have been prepared on a going concern basis. The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Group Strategic Report. The Financial Reporting Council issued "Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks" in 2016. The Directors have considered this when preparing these financial statements.

The Group's existing revolving credit facility (RCF) of £12 million at the year end, was put in place in December 2019 for two years through to December 2021 (see note 10).  In December 2020 the Group extended its facility through to 30 November 2022 with a £9 million facility through to 1 July 2021 and then £7 million for the remainder of the term.  In addition, in December 2020 the Group undertook a fundraising through the issue of new shares which raised cash proceeds, net of expenses, of approximately £7 million. 

Management have produced forecasts for the period up to January 2022 for all business units, taking account of reasonably plausible changes in trading performance and market conditions, which have been reviewed by the Directors. These reasonably plausible changes include the continued impact of the Covid-19 pandemic and the impact of the currently depressed oil and gas market. The forecasts demonstrate that the Group is forecast to generate profits and cash in 2020/2021 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.

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 in preparing the financial statements.

New Standards adopted in 2020

● IFRS 16 'Leases'

IFRS 16 'Leases' replaces IAS 17 'Leases' along with three Interpretations (IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC 15 'Operating Leases-Incentives' and SIC 27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease').

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all former operating leases except for those identified as low-value or having a remaining lease term of less than 12 months from the date of initial application.

The new Standard has been applied using the modified retrospective approach. Prior periods have not been restated.

For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as lease under IAS 17 and IFRIC 4.

The Group elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.

Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16.

On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term.

For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 4.25%.

The following is a reconciliation of total operating lease commitments at 28 September 2019 (as disclosed in the financial statements to 28 September 2019) to the lease liabilities recognised at 29 September 2019:

	£'000
Total operating lease commitments disclosed at 28 September 2019	1,348
Recognition exemptions - leases with remaining lease terms of less than 12 months	(17)
Total lease liabilities before discounting	1,331
Discounted using incremental borrowing rate	(125)
Total lease liabilities recognised under IFRS 16 at 29 September 2019	1,206

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 53 week period ended 3 October 2020

	Cylinders	Precision Machined Components	Central costs	Total
	£'000	£'000	£'000	£'000
Revenue from external customers	11,218	14,185	-	25,403
Gross profit/(loss)	2,912	2,461	(24)	5,349
Operating loss before amortisation, impairments and other exceptional costs	(58)	(656)	(1,665)	(2,379)
Amortisation and impairment	(88)	(1,788)	(13,960)	(15,836)
Other exceptional charges	(827)	(1,752)	(172)	(2,751)
Operating loss	(973)	(4,196)	(15,797)	(20,966)
Net finance (costs)/income	(31)	(89)	1,097	977
Loss before tax	(1,004)	(4,285)	(14,700)	(19,989)
Segmental net assets/(liabilities) *	7,160	12,079	(5,925)	13,314
For the 53 week period ended 3 October 2020
Other segment information:
Capital expenditure - property, plant and equipment	1,287	793	23	2,103
Depreciation	641	880	205	1,726
Amortisation	88	1,788	82	1,958

 

* Segmental net assets/(liabilities) 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 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)
Revenue from external customers	13,860	14,431	-	28,291
Gross profit/(loss)	4,996	4,198	(22)	9,172
Operating profit/(loss) before amortisation, impairments and other exceptional costs	2,089	1,879	(1,734)	2,234
Amortisation	-	(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/(liabilities) *	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/(liabilities) 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	2020			2019
	Cylinders	Precision Machined Components	Total	Cylinders	Precision Machined Components	Total
	£'000	£'000	£'000	£'000	£'000	£'000
United Kingdom	8,509	7,544	16,053	8,388	7,411	15,799
Europe	1,895	3,678	5,573	2,701	4,467	7,168
Rest of the World	814	2,963	3,777	2,771	2,553	5,324
	11,218	14,185	25,403	13,860	14,431	28,291

The Group's largest customer, which is reported within the Cylinders segment, contributed 13% to the Group's revenue (2019: 13% reported in the Precision Machined Components segment).

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

Revenue	2020	2019
	£'000	£'000
Oil and gas	14,901	16,272
Defence	5,142	9,118
Industrial gases	5,219	2,175
Hydrogen energy	141	726
	25,403	28,291

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	2020		2019
	Cylinders	Precision Machined Components	Cylinders	Precision Machined Components
	£'000	£'000	£'000	£'000
Sale of goods transferred at a point in time	2,465	13,736	8,996	14,431
Sale of goods transferred over time	4,958	-	1,739	-
Rendering of services	3,795	449	3,125	-
	11,218	14,185	13,860	14,431

The following aggregated amounts of transaction values relate to the performance obligations from existing contracts that are unsatisfied or partially unsatisfied as at 3 October 2020:

Revenue expected in future periods	2021
	£'000
Sale of goods - Cylinders	6,457

The following table provides an analysis of the carrying amount of non-current assets and additions to property, plant and equipment, all of which is held within the United Kingdom. 

						2020	2019
						£'000	£'000
Non-current assets						15,699	37,778
Additions to property, plant and equipment						3,434	3,452

 

2.  Finance income/(costs)

	2020	2019
	£'000	£'000
Interest receivable	419	-
Interest payable on bank loans and overdrafts	(455)	(421)
Interest payable on lease liabilities	(153)	(46)
Profit on sale of associate	297	-
Profit on sale of shareholding in GRN Inc.	1,895	-
Modification of Promissory Note receivable	(1,026)	-
	977	(467)

In May 2020, the Group sold its holding in PT US Inc. and Kelley GTM, LLC of which it owned 40%.  The proceeds for the sale of the entity was $50,000 and the sale of the assets of the business was $250,000, which translated to £297,000 of profit on sale of associate.

In June and July 2020, the Group sold its 21% shareholding in Greenlane Renewables, Inc. for cash proceeds, net of related expenses, of £3,145,000 generating a profit on sale of £1,895,000.  At the same time, the Group recorded a related modification of £1,026,000 in the carrying value of the Promissory Note which formed part of the consideration on sale of the Alternative Energy division in the prior period.

3. Loss before taxation

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

	2020	2019
	£'000	£'000
Depreciation of property, plant and equipment - owned assets	1,376	1,291
Depreciation of property, plant and equipment - leased assets	350	66
Profit on disposal of fixed assets	(61)	-
Amortisation of intangible assets acquired on business combinations	1,958	1,832
Amortisation of grants receivable	(40)	(40)
Staff costs - excluding share based payments	10,995	9,765
Cost of inventories recognised as an expense	12,448	13,921
Operating lease rentals:
- Land and buildings	-	360
- Machinery and equipment	19	62
Foreign currency loss	69	10
Share based payments	117	100

 

4.  Amortisation and Impairments

	2020	2019
	£'000	£'000
Amortisation of intangible assets	(1,958)	(1,832)
Goodwill and intangible assets impairment	(13,878)	-
	(15,836)	(1,832)

The Covid-19 pandemic, current trading performance and medium-term outlook of our OEM customers regarding the depressed oil and gas market has driven an impairment review of the goodwill and other intangible assets of the PMC division as they relate to Al-Met, Quadscot, Roota and Martract subsidiaries, acquired by the Group between 2010 and 2016. Lower than previously considered growth rates and higher risk-factored discount rates, than assumed at the half year, applied to future cash flows have resulted in a non-cash exceptional impairment to goodwill of £9.5 million (see note 8) and other intangible assets of £4.4 million.

 

 

5. Other exceptional charges

	2020	2019
	£'000	£'000
Reorganisation and redundancy	(424)	(450)
Impairment of inventory and work in progress	(504)	-
Costs in relation to HSE fine	(700)	-
Closure of Precision Machined Components facility (Quadscot)	(690)	-
Other costs (inc. bank refinancing and legal costs)	(433)	-
	(2,751)	(450)

 

The reorganisation and redundancy costs (which are recognised in accordance with IAS 19) relate to costs of restructuring across the Group, the divisional split is given in Note 1.

6.  Taxation

	2020		2019	2019	2019
	£'000		£'000	£'000	£'000
	Total	Continuing		Discontinued	Total
Current tax credit
Over provision in respect of prior years	(118)		(220)	(79)	(299)
	(118)		(220)	(79)	(299)
Deferred tax (credit)/expense
Origination and reversal of temporary differences	(43)		(133)		(133)
Impairment of intangible assets	(1,013)		-	-	-
Under provision in respect of prior years	61		227		227
	(995)		94		94
Total taxation credit	(1,113)		(126)	(79)	(205)

Corporation tax is calculated at 19% (2019: 19%) of the estimated assessable profit for the period. Deferred tax is calculated at the rate applicable when the temporary differences are expected to unwind.

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

			2020 £'000	2019 £'000	2019 £'000	2019 £'000
			Total	Continuing	Discontinued	Total
Loss before taxation			(19,989)	(515)	(1,282)	(1,797)
Theoretical tax at UK corporation tax rate 19% (2019: 19%)			(3,798)	(98)	(243)	(341)
Effect of charges/(credits):
- non-deductible expenses			74	51	1	52
- non-deductible exceptional items			2,970	-	-	-
- research and development allowance			(204)	(118)	-	(118)
- adjustments in respect of prior years			(57)	7	(79)	(72)
- non-taxable profit on disposal			-	-	(293)	(293)
- effect of unrealised losses on discontinued operations			-	-	535	535
- effect of discontinued operations translation rates			-	62	-	62
- differences in deferred tax rates			31	-	-	-
- losses not previously recognised now utilised			(129)	(30)	-	(30)
Total taxation credit			(1,113)	(126)	(79)	(205)

 

7. Loss 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.

On 18 December 2020 the Group undertook a fundraising through the issue of 12,471,998 new ordinary shares (see note 14) which would have materially impacted the number of shares outstanding at the end of the period, if the transaction had happened in the reporting period.

For the 53 week period ended 3 October 2020

			Total £'000
Loss after tax			(18,876)
			No.
Weighted average number of shares - basic			18,595,165
Dilutive effect of share options			-
Weighted average number of shares - diluted			18,595,165
Basic loss per share			(101.5)p
Diluted loss per share			(101.5)p

 

 

The Group adjusted loss per share is calculated as follows:

Loss after tax			(18,876)
Amortisation and Impairments (see note 4)			15,836
Other exceptional charges (see note 5)			2,751
Theoretical tax effect of the above adjustments			(895)
Adjusted loss			(1,184)
Adjusted loss per share			(6.4)p

 

In the Directors' view, adjusted loss per share reflects the ongoing performance of the business, how the business is managed on a day to day basis, and allows for a consistent and meaningful comparison.

The theoretical tax effect is based on 19% of adjustments for amortisation and other exceptional charges incurred.

For the 52 week period ended 28 September 2019

	Continuing £'000	Discontinued £'000	Total £'000
Loss after tax	(389)	(1,203)	(1,592)
			No.
			18,595,165
Weighted average number of shares - basic			9,234
Dilutive effect of share options
			18,604,399
Weighted average number of shares - diluted
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 loss per share is calculated as follows:

	Continuing £'000	Discontinued £'000	Total £'000
Loss after tax	(389)	(1,203)	(1,592)
Amortisation (see note 4)	1,832	558	2,390
Other exceptional charges (see note 5)	450	(1,401)	(951)
Theoretical tax effect of the above adjustments	(434)	(428)	(862)
Adjusted earnings/(loss)	1,459	(2,474)	(1,015)
Adjusted earnings/(loss) per share	7.8p	(13.3)p	(5.5)p

 

 

8. Goodwill

	Total £'000
Cost and gross carrying amount
At 29 September 2018	14,370
Removed upon business disposal	(4,860)
At 28 September 2019	9,510
Impairment	(9,510)
At 3 October 2020	-

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. All of the goodwill arose in respect of acquisitions in the Precision Machined Components division made in prior years.

The Group tests annually for impairment, under IAS 36, 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, using a four year forecast and applying a discount rate of 13.0% to the Precision Machined Components division (2019: 14.7%).  The 2020 assessment, following the reorganisation of the individual PMC businesses into an integrated division, has been carried out at the divisional level.

The forecast has been 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 of orders to determine revenue. The forecasts used for years two to four assume 2% revenue growth, however no long-term rate of growth or inflation is incorporated into perpetuity at the end of year four.

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.

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 a full impairment is required for the goodwill relating to the Precision Machined Components division.

Management is not aware of any other matters that would necessitate changes to its key estimates.

 

9. Other Financial Assets

Amounts due within 12 months	2020	2019
	£'000	£'000
Promissory Note	3,074	-
Total due within 12 months	3,074	-
Amounts due after 12 months
Listed Security	-	1,250
Promissory Note	-	6,100
Total due after 12 months	-	7,350

As at the beginning of the year, the Group held a listed security asset which related entirely to its 21% shareholding in Greenlane Renewables Inc. and a Promissory Note which formed part of the consideration on the sale of the Alternative Energy division in the prior year. The voting rights of the shares held by the Group were restricted so the Group considered that it did not have significant influence over GRN and did not account for the investment as an associate entity in the prior year.

The fair value of the shareholding in Greenlane Renewables Inc. as at 28 September 2019 was determined by reference to published price quotations in an active market (classified as level 1 in the fair value hierarchy). In June and July 2020, the Group sold its 21% shareholding in Greenlane Renewables, Inc. for cash proceeds, net of related expenses, of £3,145,000 generating a profit on sale of £1,895,000 which has been reflected as an exceptional credit within Finance income/(costs) in the current year (see note 2).

The Promissory Note held at the start of the year was valued at amortised cost. The original term of the note was four years with a repayment date of no later than 3 June 2023 at Greenlane Renewables Inc. discretion. In February 2020, a prepayment of £2.1 million was received. Interest is charged at 7% on the outstanding Promissory Note 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 was held solely to collect associated cash flows which related to principal and interest only.

In June and July 2020, the Group sold its 21% shareholding in Greenlane Renewables Inc. Linked to disposal of this shareholding during the year the terms of the related attached Promissory Note were amended to reduce the value of the Note and to accelerate the repayment date for the outstanding amount to 30 June 2021.  As a result, a modification of £1,026,298 has been reflected as an exceptional charge within Finance income/(costs) in the current year (see note 2).

The new Promissory note is classified as being held at fair value through profit and loss as its value at the point of the modification was linked to the value at which the Greenlane Renewables Inc. shareholding was sold, thereby failing the solely payments of principal and interest test. The fair value has been assessed at the year end and is reflected in the value shown in the table above.

10. Borrowings

	2020 £'000	2019 £'000
Current
Revolving credit facility	-	10,800
	2020 £'000	2019 £'000
Non-current
Revolving credit facility	6,773	-
Total borrowings	6,773	10,800

During the period, the bank loans drawn under the Revolving Credit Facility (RCF) had an average annual interest rate of 2% above LIBOR.

During the period the Group had in place a £12 million RCF which was drawn £6.8 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 at the year end, was put in place in December 2019 for two years through to December 2021.  In December 2020 the Group extended its facility through to 30 November 2022 with a £9 million facility through to 1 July 2021 and then £7 million for the remainder of the term.

The key financial covenant in the amended RCF remains the leverage covenant, which is tested quarterly, and has a maximum permitted net debt to adjusted EBITDA ratio of 5.5:1 for the two quarterly test dates of December 2020 and March 2021, a ratio of 3.5:1 in June 2021 reducing to a maximum of 3:1 by September 2021 and for the remainder of the term. Following the fundraising in December 2020 (see note 14), is it expected that these covenants may be subject to amendment following discussions with the bank.  

The carrying amount of 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 borrowing facilities are as follows:

	2020	2019
	£'000	£'000
Due within one year:
Revolving credit facility	-	10,800
Due for settlement after one year:
Revolving credit facility	6,773	-

The Group has the following undrawn borrowing facilities:

	2020	2019
	£'000	£'000
Expiring within one year	-	4,200
Expiring beyond one year	5,227	-

Subsequent to year end, as described above the RCF was reduced from £12 million to £9 million through to 1 July 2021 and then £7 million for the remainder of the term to 30 November 2022.

11. Lease Liabilities

Lease liabilities are presented in the statement of financial position as follows:

	2020	2019
	£'000	£'000
Current
Asset finance lease liabilities	955	656
Right of use asset lease liabilities	254	-
	1,209	656
Non-current
Asset finance lease liabilities	2,003	2,116
Right of use asset lease liabilities	840	-
	2,843	2,116

The Group has leases for certain operational factory premises and related facilities, several large items of plant and machinery equipment, an office building, a number of motor vehicles and some IT equipment.

For right of use assets, with the exception of short-term leases and leases of low-value underlying assets, each lease is reflected on the balance sheet as a right-of-use asset and a lease liability.

The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment (see note 14). Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right-of-use asset can only be used by the Group. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. Some leases contain an option to extend the lease for a further term. The Group is prohibited from selling or pledging the underlying leased assets as security.

For leases over office buildings and factory premises the Group must keep those properties in a good state of repair and return the properties in their original condition at the end of the lease. Further, the Group must insure items of property, plant and equipment and incur maintenance fees on such items in accordance with the lease contracts.

The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 3 October 2020 were as follows:

	Within one  year	Over one to five years	Total
	£'000	£'000	£'000
3 October 2020
Lease payments	1,335	3,012	4.347
Finance costs	(126)	(169)	(295)
Net present value	1,209	2,843	4,052

	Within one  year	Over one to five years	Total
	£'000	£'000	£'000
28 September 2019
Lease payments	799	2,411	3,210
Finance costs	(143)	(295)	(438)
Net present value	656	2,116	2,772

Lease payments not recognised as a liability

The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. In addition, certain variable lease payments are not permitted to be recognised as lease liabilities and are expensed as incurred and are disclosed in operating lease commitments.

12. Net Debt Reconciliation

	2020 £'000	2019 £'000
Debt - Revolving credit facility (see note 10)	(6,773)	(10,800)
Debt - Asset finance leases (see note 11)	(2,958)	(2,772)
Debt - Right of use asset leases (see note 11)	(1,094)	-
Cash and cash equivalents	3,416	2,208
Net debt	(7,409)	(11,364)
Equity	13,314	32,086

The Directors believe that Net Debt, which measures the Group's overall level of indebtedness, is relevant to an understanding of the Group's financial performance.

13.  Consolidated cash flow statement

	2020	2019
	£'000	£'000
Loss after tax - continuing operations	(18,876)	(389)
Loss after tax - discontinued operations	-	(1,203)
Adjustments for:
Finance costs - net	189	467
Depreciation of property, plant and equipment	1,726	1,377
Amortisation of intangible assets	1,958	2,390
Share option costs	117	100
Income tax credit	(1,113)	(126)
Profit on disposal of property, plant and equipment	(61)	-
Profit on sale of PT US Inc. associate	(297)	-
Profit on disposal of shareholding in Greenlane Renewables Inc. Modification of Promissory Note receivable	(1,895) 1,026	- -
Impairment of goodwill and intangible assets	13,878	-
Changes in working capital:
Increase in inventories	(372)	(1,234)
(Increase)/decrease in trade and other receivables	(2,002)	402
Increase/(decrease) in trade and other payables	7,429	(1,156)
Cash flows from operating activities	1,707	628

14. Subsequent events

The Company's existing RCF of £12 million at the year end, was put in place in December 2019 for two years through to December 2021 (see note 10).  In December 2020 the Company extended its facility through to 30 November 2022 with a £9 million facility through to 1 July 2021 and then £7 million for the remainder of the term.  In addition, the Company undertook a fundraising through the issue on 18 December 2020 of 12,471,998 new ordinary shares which raised cash proceeds, net of expenses, of approximately £7 million. 

Pressure Technologies plc, the company, has £26.2 million of share premium as at year end.  On 17 December 2020, the Company received shareholder approval to convert the share premium, under a capital reduction, into a distributable reserve.  This process requires Court Approval.  An application to the Courts has been made but the timing of the process is currently uncertain.

 

END

 

 

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