Pressure Technologies plc 2021 Preliminary Results

RNS Number : 7364Y

Pressure Technologies PLC

18 January 2022

 

18 January 2022

Pressure Technologies plc

("Pressure Technologies" or "the Group")

2021 Preliminary Results

Pressure Technologies (AIM: PRES), the specialist engineering group, announces its preliminary results for the 52 weeks to 2 October 2021.

Financial Results

·	Revenue of £25.3 million (2020: £25.4 million)
·	Gross profit of £6.7 million (2020: £5.3 million)
·	Adjusted operating loss* of £0.7 million (2020: £2.4 million operating loss)
·	Loss before taxation of £4.2 million (2020: £20.0 million loss before taxation)
·	Basic loss per share at (12.0)p (2020: loss per share (101.5)p)
·	Net operating cash outflow** of £ 6.6 million (2020: £1.7 million inflow)
·	Net debt*** reduced to £4.9 million (2020: £7.4 million)

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

** Before cash outflow for exceptional costs

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

Group Highlights

Results

·	Group results in line with market expectations, despite the prolonged challenge of oil and gas markets, supply chain constraints and the disruptive backdrop of Covid-19
·	Strong performance in Chesterfield Special Cylinders (CSC) from defence, industrial, nuclear and hydrogen contracts offset weak results in Precision Machined Components (PMC)
·	In CSC, defence contract revenues more than doubled to £11.1 million (2020: £5.1 million), driven by UK and overseas naval submarine and surface ship programmes
·	In PMC, non-oil and gas revenue for the year was £0.7 million (2020: £0.3 million), being 12% of the divisional total for the year and highlighting progress made in diversifying end markets
·	Further PMC restructuring completed in February, delivering a 40% reduction in the cost base compared with 2020 and helping to minimise losses and conserve cash
·	Order intake at our Roota and Martract sites recovered steadily from March to exceed pre-pandemic levels of output and profitability for well tool and valve components
·	Slower than expected demand for flow control components severely impacted order intake at our Al-Met site, which remained loss-making throughout the year
Strategic Progress
·	Revolving credit facility with Lloyds Bank plc amended in October 2021 and facility term extended to June 2023
·	In CSC, process and system improvements and investment in operational capability have progressed under a strengthened management team and will continue throughout 2022
·	In PMC, strategic progress continued with the diversification of customers and end markets and the extension of product ranges covered by long-term supply agreements
·	New production management systems in PMC and previous investment in advanced equipment are delivering efficiencies, costs savings and increased competitiveness
Hydrogen Energy Market Progress & Investment
·	Continued momentum and increased visibility of opportunities in the hydrogen energy market, with customers planning increased production capacity throughout 2022
·	Revenue growth to £2.2 million (2020: £0.2 million) from hydrogen refuelling station contracts for Haskel Hydrogen Group, McPhy, Framatome, Arcola Energy and Plug Power
·	First two orders placed by Shell Hydrogen under the five-year framework agreement signed in June 2020 for European refuelling station storage
·	Efficient and highly competitive cylinder design developed to allow modular expansion and configured for cost-effective in-situ inspection and recertification through life
·	Investment continues in the CSC production facility to meet expected growth in hydrogen project demand from 2023, with support from the successful December 2020 fundraise
·	Collaboration strengthened with specialist steel tube suppliers, Tenaris and Vallourec to support competitive product development and underpin future order book delivery
·	Purchase of strategic steel tube stock for hydrogen cylinder designs helped us respond quickly to growing customer demand in a period of cost volatility and supply chain disruption
Outlook
·	Strong defence order book and pipeline for CSC going into FY22, with high-value naval projects and Integrity Management deployments weighted to the second half of the year
·	Strategy and positioning in the hydrogen energy market are showing progress and delivering results, as pipeline of opportunities for static and mobile storage systems continues to grow
·	The visibility of future hydrogen energy demand is improving, with refuelling station projects expected to ramp up sharply from 2023 onwards
·	For PMC, we are encouraged by steadily improving order intake levels.  All OEM customers are reporting a stronger outlook for the oil and gas market during 2022
·	Whilst we remain cautious regarding the pace of recovery in PMC, we expect improved performance in FY22, including restoring profitability in our Al-Met business
·	Our strategy remains focused on delivering value from the growth and development of both divisions and the Board remains confident in the prospects and opportunities for the Group

Chris Walters, Chief Executive of Pressure Technologies commented:

"Over the past year, we have continued to make good progress and delivered results in line with market expectations, despite the prolonged challenge of oil and gas market conditions and the disruptive backdrop of Covid-19. Colleagues across the business have shown great resilience through this period and I would like to thank them for all that they have done and continue to do.

The management and operational changes we have implemented over the past two years have helped us to cope with these challenges and have further developed the organisational culture in line with our values, which remains key to the delivery of our strategy and sustainable growth.

Improved performance in Chesterfield Special Cylinders has been underpinned by high-value defence contracts and the orderbook remains strong going into 2022 for major UK and overseas naval submarine and surface ship programmes.

Revenue from hydrogen energy contracts grew significantly last year and momentum continues to build in this exciting and fast-developing market, with increased visibility of opportunities and customers planning increased production capacity throughout 2022.  Investment continues in the Chesterfield Special Cylinders production facility to meet expected growth in hydrogen project demand from 2023.

Strong collaboration with our specialist steel tube suppliers, Tenaris and Vallourec continues to support competitive product development and underpins the delivery of the future order book.  The purchase of strategic steel tube stock for popular hydrogen cylinder designs in early 2021 proved to be important in mitigating raw material cost escalation, supply chain disruption and increasing lead times experienced throughout the second half of last year.

Our OEM customers are reporting a stronger outlook for the oil and gas market in 2022 and whilst we remain cautious regarding the pace of recovery, the steadily improving order intake is encouraging news for our Precision Machined Components division.

As we begin 2022, the Group is well positioned to take advantage of a strong defence order book, exciting growth opportunities in hydrogen energy and the prospect of steadily improving oil and gas market conditions.  Our strategy remains focused on delivering value from the growth and development of both divisions and the Board remains confident in the prospects and opportunities for the Group."

ENDS

For further information, please contact:

Pressure Technologies plc Chris Walters, Chief Executive James Locking, Chief Financial Officer	Tel: [phone] [e-mail]
Singer Capital Markets  (Nomad and Broker) Mark Taylor / Asha Chotai	Tel: [phone]
Houston  (Financial PR and Investor Relations) Kay Larsen / Ben Robinson	Tel: [phone]

 

Chairman's statement

Overview

The team at Pressure Technologies demonstrated great resilience and resourcefulness as the Covid-19 pandemic continued to impact our business throughout the financial year. Whilst a number of anticipated contracts were delayed as a result of the significant economic and operational headwinds that have slowed global activity for an extended period of time, we focused on enhancing our capabilities and increasing efficiencies to ensure that the business is well placed to secure the opportunities we see in FY22.

During the year we continued to prioritise the safety and wellbeing of our people and I would like to express my gratitude to the entire Pressure Technologies team for their hard work and commitment throughout this immensely challenging period.

We started the financial year with a substantial funding round in December 2020 from supportive investors that will enable us to focus on the exciting growth opportunities for Chesterfield Special Cylinders (CSC) in the hydrogen energy market and Integrity Management services business. The importance of the hydrogen sector was highlighted during the COP26 meeting in Glasgow in November 2021, where discussions centred on the importance of limiting global warming through energy transition. In the years ahead, the hydrogen sector will play a key role in achieving that goal and I am delighted that Pressure Technologies and CSC will be supporting these efforts. We have also continued to see strong performance in defence markets with a healthy pipeline of opportunities heading into 2022, which will be CSC's 125^th anniversary year. 

Having strengthened our engineering, sales and production capabilities in recent years, we saw new customer acquisitions and further penetration in our target markets, despite the challenging economic and operating environment. In addition, the business returned to a stable financial footing at the end of the year, having agreed an amendment to its banking credit facility.

Whilst oil and gas markets remained very subdued for much of 2021, towards the end of the financial year we started to experience early signs of recovery, with renewed investment in subsea systems and production levels which is encouraging for Precision Machined Components (PMC) as we move into FY22.

Despite the disruptions, we maintained focus on improving operational efficiencies and bringing talent into the business to ensure that the Group is well-placed to fully leverage its leading position in core markets over the medium and long term.

Board

In May 2021, James Locking was appointed Chief Financial Officer and joined the Board. Having been with Pressure Technologies for two years already as Group Financial Controller and then Interim Chief Financial Officer, James has a strong understanding of the business and the required skills that will be essential as Pressure Technologies continues to grow.

In November 2021, I announced that I would be stepping down as Chairman prior to the next Annual General Meeting in March 2022. It has been a privilege and honour to serve as Chairman of the Pressure Technologies Board over the past two years. I am pleased to have been able to support our Chief Executive, Chris Walters, and his team to steer the business through these challenging times.  I leave the company with a significantly strengthened balance sheet and sufficient funding to meaningfully address the growing hydrogen energy opportunity and recovering oil and gas market. My successor will join a Board with the strong mix of knowledge and experience required to support and guide Pressure Technologies through this next exciting phase of its development.

Sir Roy Gardner

Chairman
 

Business review

Over the past year, we have continued to make good progress against our strategic priorities and delivered results in line with market expectations, despite the prolonged challenge of oil and gas market conditions and the disruptive backdrop of Covid-19.

The management and operational changes we have implemented over the past two years have helped us to cope with these challenges and have further developed the organisational culture in line with our values, which remains key to the delivery of our strategy and sustainable growth. Colleagues across the business have worked hard and shown great resilience throughout the year and I would like to thank them for all that they have done and continue to do.

I would also like to thank our Chairman, Sir Roy Gardner, who will stand down from the Board before the next AGM in March 2022, for his support and guidance over the past two eventful years.

OUR PERFORMANCE

Overall Group revenue for the year of £25.3 million (2020: £25.4 million) and an adjusted operating loss¹ of £0.7 million (2020: £2.4 million loss) reflect a strong performance in Chesterfield Special Cylinders (CSC) from major defence, nuclear and hydrogen energy contracts, which offset the impact of difficult trading conditions for Precision Machined Components (PMC) in the oil and gas market, supply chain disruptions and the continuing backdrop of Covid-19 related challenges.

£ million	2021	2020	2019	2018
Group Revenue	25.3	25.4	28.3	21.1
Oil & Gas	6.1	14.9	16.3	12.4
Defence	11.1	5.1	9.1	6.4
Industrial	5.9	5.2	2.2	2.3
Hydrogen Energy	2.2	0.2	0.7	-
Group Operating (Loss) / Profit before amortisation, impairment and other exceptional costs	(0.7)	(2.4)	2.2	1.0
Group Loss before taxation	(4.2)	(20.0)	(0.5)	(1.7)

¹ Operating loss excluding amortisation, impairments and other exceptional costs.

CHESTERFIELD SPECIAL CYLINDERS

£ million	2021	2020	2019	2018
Revenue	18.9	11.2	13.9	9.9
Oil and Gas	0.3	1.0	2.2	1.4
Defence	11.1	5.1	9.1	6.4
Industrial	5.3	4.9	1.9	2.1
Hydrogen Energy	2.2	0.2	0.7	-
Gross Margin %	32%	26%	36%	35%
Operating Profit/(loss) before amortisation, impairment and other exceptional costs	2.8	(0.1)	2.1	1.1
Profit/(loss) before taxation	1.7	(1.0)	2.1	1.0
Return on Revenue	15%	0%	15%	11%

Chesterfield Special Cylinders delivered a 69% increase in revenue for the year to £18.9 million (2020: £11.2 million). 

The phasing of major defence contracts resulted in significantly higher revenue and gross margin in the first half of the year, which also included the positive impact of a major defence contract delayed from FY20 into Q1 FY21. Gross margin increased to 32% (2020: 26%), resulting in an adjusted operating profit of £2.8 million (2020: £0.1 million adjusted operating loss) and a return on revenue of 15% (2020: 0%).

Revenue for defence contracts more than doubled to £11.1 million (2020: £5.1 million), representing 59% of the divisional total for the year, driven by UK and overseas naval submarine and surface ship programmes for customers including BAE Systems, Naval Group, Babcock and ThyssenKrupp. A contract to supply highly specialised cylinders for early warning radar systems was delivered to Thales for the UK Ministry of Defence during the year.

The defence order book and contract pipeline remain strong, providing good visibility of naval new construction and refit programmes going into FY22.  Several major contracts were secured in the first quarter of FY22 for the supply of pressure systems to UK and overseas submarine and surface ship programmes. 

Industrial market revenue increased to £5.3 million (2020: £4.9 million), representing 28% of the divisional total for the year, and included the second contract for EDF Energy to supply several UK nuclear power stations with nitrogen storage packages and the delivery of a contract for new customer, Parker Hannifin to supply cylinders for a wastewater treatment project in Abu Dhabi.

Momentum continued to build in the fast-developing hydrogen energy market, with revenue of £2.2 million (2020: £0.2 million), representing 12% of the divisional total for the year, from contracts with established and new customers, including Haskel Hydrogen Group, McPhy, Framatome, Arcola Energy and US fuel cell technology major, Plug Power. During the second half the year, Shell placed the first two orders for hydrogen storage under the five-year framework agreement with CSC announced in June 2020, both for European refuelling station projects.

All contracts placed to date for hydrogen storage utilise CSC's efficient and highly competitive hydrogen cylinder design that has been developed with our customers to allow modular expansion to meet future demand and configured to enable cost-effective in-situ inspection and recertification with maximum availability through life, using CSC's Integrity Management services.

Collaboration with our specialist steel tube suppliers, Tenaris and Vallourec has been strengthened further during the year to size the global hydrogen energy market, support competitive product development, improve manufacturing efficiencies and to underpin the delivery of our future order book. The purchase of strategic steel tube stock for popular hydrogen cylinder designs in early 2021 proved to be important in mitigating raw material cost escalation, supply chain disruption and increasing lead times experienced throughout the second half of the year.

Demand for oil and gas related projects deteriorated sharply during 2020 and remained low throughout 2021 due to depressed oil prices and reduced capital spend in the sector. Total oil and gas market revenue decreased by 70% to £0.3 million (2020: £1.0 million), representing just 2% of the divisional total for the year. Early signs of recovering demand for air pressure vessels came in the second half of the year with a £1.1 million order placed by established customer, MHWirth for delivery in FY22. Several smaller orders for similar applications were also placed by new and established customers in the second half of the year.

Covid-19 travel restrictions continued to significantly disrupt Integrity Management services and deployments during the year. Several UK and overseas projects were completed for offshore services and defence customers in the first half of the year, but the extended UK lockdown, travel restrictions and postponed customer projects had a negative impact on Integrity Management revenue for the year, which fell to £1.5 million (2020: £2.3 million). A recovery of deployment activity had been expected during the second half, but these projects have been rescheduled into FY22 and FY23.

Investment in people and production facilities progressed at the CSC Sheffield site during the year, in line with plans set out during the December 2020 fundraise. The investment will continue throughout 2022 and will increase overall operational capacity to meet the expected growth in demand for static and mobile hydrogen storage projects from 2023. We have also strengthened our operational teams, making key appointments across research and development, engineering, sales, production and supply chain functions.

PRECISION MACHINED COMPONENTS

£ million	2021	2020	2019	2018
Revenue	6.4	14.2	14.4	11.2
Oil and Gas	5.7	13.9	14.0	11.0
Industrial	0.7	0.3	0.4	0.2
Gross Margin %	11%	17%	29%	33%
Operating (Loss) / profit before amortisation, impairment and other exceptional costs	(1.6)	(0.7)	1.9	1.5
Loss before taxation	(2.3)	(4.3)	(0.3)	(0.3)
Return on Revenue	(26)%	(5)%	13%	13%

Precision Machined Components (PMC) delivered revenue of £6.4 million (2020: £14.2 million) and an adjusted operating loss of £1.6 million (2020: £0.7 million loss), reflecting the very challenging trading conditions in the oil and gas market throughout FY21, while Covid-19 disruption and supply chain constraints resulted in several delays to output.

Our customers downgraded their trading outlook in early 2021 and, as a result, a further phase of restructuring was completed in February, which delivered a 40% reduction in the cost base compared with 2020 and helped to minimise losses and conserve cash through the year.

As expected, the demand for subsea well intervention tools, valve assemblies and control module components began to recover steadily from March 2021, exceeding pre-pandemic order intake levels and resulting in a profitable second half of the year for our Roota and Martract sites. This recovery has been supported by successful recruitment and new skills development, increasing Roota's capacity to meet the growing demand. 

However, this improvement was largely offset by the slower than expected recovery in demand for subsea trees and the associated production drilling and flow control components, which severely impacted order intake at our Al-Met site, which remained loss-making in the second half of the year.  Whilst our Al-Met OEM customers have indicated that they expect a strong recovery in demand for subsea trees from the beginning of 2022, we have yet to see this increased optimism result in higher order intake.

Further strategic progress has been made on reducing customer concentrations and extending the range of products covered by the long-term supply agreements established over the past two years, demonstrating customer confidence in our products and service levels as they seek to consolidate their approved supplier lists. In June 2021, we reported that we had signed a global supply agreement with Schlumberger Technology Corporation, covering a wide range of precision machined parts for their oilfield service applications. 

A stronger sales team and mature sales processes have underpinned increased sales effectiveness and better customer relationship management. We have also made initial progress in diversifying our end markets, with the first orders secured for offshore wind turbine components, water treatment applications and specialised components on UK defence projects in collaboration with CSC, which are expected to continue into FY22. Non-oil and gas revenues totalled £0.7 million (2020: £0.3 million), being 12% of divisional revenue for the year, with initial progress made in defence and industrial markets.

OUTLOOK

Our strategy remains the delivery of value from the continued growth and development of both divisions and whilst we have had to endure another year of difficult trading in the PMC division as a result of the Covid-19 pandemic and depressed oil and gas market conditions, the Board is pleased with the overall progress being made by the Group.

CSC has a strong defence order book going into FY22, with high-value projects weighted to the second half of the year. As travel restrictions are gradually lifted, periodic inspection regimes will require product revalidations and we expect to see a steady recovery in Integrity Management services across defence, offshore, nuclear power and hydrogen energy sectors, where risk management and asset availability are paramount.

As governments increasingly acknowledge the role of hydrogen in net zero carbon targets for transportation and industrial decarbonisation, hydrogen energy storage remains a strategically important market for the Group. Hydrogen related revenue was strong in FY21 and the pipeline of opportunities for static and mobile hydrogen storage systems with established and new customers continues to grow. The visibility of future demand is improving, with refuelling station projects expected to ramp up sharply driven by city bus networks from 2023 and accelerating heavy duty truck demand from 2024.

Ongoing investment following the December 2020 fundraising is helping to deliver operational improvements that will underpin the capacity growth, efficiencies and reduced lead times at our Sheffield facility over the next two years in readiness for the increasing hydrogen demand.  Stronger collaboration with our specialist steel tube suppliers, Tenaris and Vallourec will continue to support competitive product development and underpin the delivery of our future order book.

For PMC, our focus remains on the recovery of profitability and cash generation. We are encouraged by recent increases in order intake for the Roota and Martract businesses and by efficiency and margin gains achieved from operational improvements at all sites. Our major OEM customers, including Schlumberger, Halliburton, Expro and Baker Hughes are reporting a stronger outlook for the oil and gas market during 2022, which we expect to drive improved performance, including restoring profitability in our Al-Met business. Whilst we remain cautious regarding the pace of recovery, particularly in light of the Covid-19 Omicron variant, the division is well placed to deliver an improved performance in FY22.

The Board remains confident in the prospects and opportunities for the business in the medium term.

Chris Walters

Chief Executive

Financial review

Highlights

Group Revenue at £25.3m (2020: £25.4m)	Group Adjusted operating loss*  at £0.7m (2020: loss of £2.4m)	Group loss  before taxation at £4.2m (2020: loss of £20.0m)
Return on Revenue** at -2.9% (2020: -9.4%)	Net operating cash outflow*** £6.6m (2020: £1.7m cash inflow)	Closing  Net Debt**** £4.9m (2020: £7.4m)

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

** Adjusted operating loss divided by revenue

*** Before cash outflow for exceptional costs

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

Our financial priority this year, following the fundraise in December 2020, was to invest in our Chesterfield Special Cylinders (CSC) facility, strategic stock to reduce lead times in the hydrogen energy market and the Integrity Management business, whilst maintaining sufficient liquidity for the increased working capital requirements during the year.

CSC had a significantly improved year due to the BAE Dreadnought Boatset 2 revenue for material and build as well as increased hydrogen energy revenue. However, continued tough trading conditions within the oil and gas market as well as Covid-19 disruption severely impacted the Precision Machined Components (PMC) division. Overall, this resulted in a very minor reduction in Group revenue for the year to £25.3 million (2020: £25.4 million) and an adjusted operating loss for the year of £0.7 million (2020: adjusted loss of £2.4 million). The Group made a loss before taxation of £4.2 million (2020: loss of £20.0 million).

CSC revenue increased by 69% to £18.9 million (2020: £11.2 million) with an adjusted operating profit of £2.8 million (2020: £0.1 million adjusted loss) and profit before taxation of £1.7 million (2020: loss of £1.0 million). PMC revenue decreased by 55% to £6.4 million (2020: £14.2 million) with an adjusted operating loss of £1.6 million (2020: adjusted loss of £0.7 million) and a loss before taxation of £2.3 million (2020: loss of £4.3 million).

As at 2 October 2021, net debt reduced to £4.9 million (2020: £7.4 million). The Group's £6.0 million revolving credit facility (RCF) was drawn at £4.8 million (2020: £6.8 million). Cash and cash equivalents decreased slightly to £3.2 million (2020: £3.4 million) resulting in reduced net borrowings (before lease liabilities) of £1.6 million (2020: £3.4 million). Lease liabilities as at 2 October 2021 decreased to £3.4 million (2020: £4.1 million). 

The reduction in net debt was driven principally by the receipt in February 2021 of a £3.4 million final repayment of the Greenlane Renewables Inc. Promissory Note and the fundraising in December 2020, through the issue of 12,471,998 new ordinary shares, which raised cash proceeds, net of expenses, of approximately £7.0 million. These cash inflows were partially offset by a net working capital outflow of £6.2 million.

The Group's Revolving Credit Facility (RCF) was amended subsequent to year end in October 2021. The RCF was reduced from £6.0 million to £4.0 million and the facility term was extended from November 2022 to June 2023. New covenants covering minimum liquidity and maximum capital expenditure were agreed for the period to the end of June 2022. Leverage (net debt to adjusted EBITDA) and interest cover covenants, tested quarterly, will commence on the first testing date of 30 September 2022 through to the end of the facility.

Trading results

CSC

Revenue increased by 69% on the prior year primarily due to the phasing of major defence contracts and a step change in our hydrogen energy revenue to £2.2 million (2020: £0.2 million). 

As a result, gross profit increased to £6.1 million (2020: £2.9 million), with a 6.3ppt improvement in gross margin. 

Adjusted operating profit before amortisation, impairment and other exceptional costs was £2.8 million (2020: £0.1 million adjusted operating loss) with a 15.0ppt increase in return on revenue to 15.0% (2020: nil).

Contracts that were categorised as 'recognised over time' and still in progress at the end of the year had a future revenue value of £5.0 million relating to as yet unfulfilled performance obligations which are due for delivery in 2022.

PMC

PMC revenue decreased by 55% primarily due to the lack of recovery in oil and gas markets, the key end-market for this division, and the continued impact of the Covid-19 pandemic. The division also saw lower than expected gross margins as volume decreases could not be fully mitigated, despite the further restructuring in February giving a 40% reduction in the divisional cost base.

Gross profit decreased by 71.7% with a 6.4ppt reduction in gross margin to 10.9% compared to 2020, primarily due to the sharply reduced order intake in the first half of the year as our oil and gas OEM customers deferred project spend causing further uncertainty and disruption in the market. There were some signs of recovery in our Roota operation in the second half of the year with a return to profitability in the last four months of the financial year. However, Al-Met experienced very difficult trading throughout the year and is expected to return to profitability in the second quarter of FY22.

The division reported an adjusted operating loss before amortisation, impairments and other exceptional costs of £1.6 million which represents a return on revenue of -25.7%, a 21.1ppt reduction from 2020.

Central costs

Unallocated central costs (before other exceptional costs) were £1.9 million (2020: £1.7 million). 

In respect of the Group's various share option plans there was a net cost in the year of £0.1 million (2020: £0.1 million). 

Asset impairment and amortisation

The Group tests annually for impairment, or more frequently if there are indicators that intangible and tangible fixed assets might be impaired. The continued impact of the Covid-19 pandemic and the difficult trading conditions and outlook for the oil and gas market, PMC's key end-market, 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 PMC division - may be impaired.  The Group has considered a range of economic conditions for the sectors 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 assumptions underlying these forecasts are detailed in these financial statements. The review concluded that no impairment was required in these financial statements. Amortisation costs were £0.2 million (2020: £2.0 million) and have been treated as a non-cash exceptional item. 

The Group holds a number of freehold land and buildings, including CSC's main facility at Meadowhall Road, Sheffield.  As part of discussions with the Group's bankers during the year, the Directors obtained a valuation from an independent chartered surveyor, Lambert Smith Hampton, of this building which indicated that an impairment of this asset of £655,000 was required which has been treated as a non-cash exceptional item.

Also included in Assets under Construction is £829,000 along with associated costs of £289,000 held in prepayments, relating to the internal and third-party costs incurred in the current and prior years associated with the development of a new ERP system in the CSC division. Improvements to the incumbent ERP system in CSC have recently become available which the Group is currently assessing for suitability and cost.  Whilst this review is not yet complete, an initial assessment indicates that upgrading the incumbent system to the recently announced software version, rather than completing the development of the new system, may be a more appropriate and cost-effective route to improving the ERP system in CSC.  As a result, the Directors have determined that there is an indicator of impairment of the Asset under Construction and the associated prepayment relating to the development of CSC's ERP system. Following an impairment review, the Directors have recorded an impairment charge of £1,118,000 to fully write off this asset.  This impairment has been reflected as a non-cash exceptional item.

Other exceptional items 

Reorganisation and redundancy costs in the year were £0.4 million (2020: £0.4 million), which predominantly related to the PMC site reorganisation costs that took place in February 2021.

Other exceptional items included an inventory write off in CSC relating to obsolete stock items totalling £0.2 million (2020: £0.5 million), costs related to the closure in the prior year of PMC's Quadscot facility of £0.2 million (2020: £0.7 million), and other head office costs including bank refinancing costs totalling £0.2 million (2020: £0.4 million).

Taxation

The tax credit for the year was £0.8 million (2020: £1.1 million).

The current year tax credit has benefitted from a £0.4 million overprovision in respect of the prior year (2020: overprovision £0.1 million).

R&D tax benefits in respect of 2021 are expected to be £1.4 million (2020: £1.1 million). 

Corporation tax refunded in the year totalled £nil (2020: £0.2 million). Taxes relating to overseas territories are minimal.

Foreign Exchange

The Group now has no material exposure to movements in foreign exchange rates related to both transactional trading and translation of overseas assets and liabilities, following the receipt in February 2021 of the remaining Promissory Note from Greenlane Renewables Inc. which were part denominated in Canadian dollars. 

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 hedging already in place. Where appropriate, and where the timing of future cash flows are able to be reliably estimated, forward contracts can be taken out to cover exposure. 

As at 2 October 2021 there were no forward contracts in place (2020: none). 

Financing, cash flow and leverage

Operating cash outflow before movements in working capital was £0.4 million (2020: £3.3 million outflow). After a net working capital outflow of £6.2 million (2020: £5.0 million inflow), cash used by operations was £6.6 million (2020: £1.7 million generated from operations). Key movements within working capital include £0.8 million related to the purchase of strategic stock, £2.6 million related to the increase in CSC's net contract balances and an outflow of £1.0 million PAYE and VAT to HMRC, which had been deferred from the prior year utilising Covid-19 relief. 

Cash outflows in the year in respect of other exceptional costs (see Note 5) were £0.6 million (2020: £1.5 million). This excludes the inventory write down and asset impairments which were non cash-flow related. 

During the year the Group received the final repayment of £3.1 million of the Promissory Note and its associated interest from Greenlane Renewables Inc. which formed part of the consideration on the sale of the Alternative Energy division in 2019. 

Net debt was £4.9 million (2020: £7.4 million), the decrease driven primarily by the receipts of £3.4 million from the Greenlane Renewables Inc. Promissory Note and the fundraising on 18 December 2020 which raised cash proceeds, net of expenses, of approximately £7.0 million. This enabled the repayment of £2.0 million of the Group's drawings under the revolving credit facility ("RCF") reducing drawn debt to £4.8 million at the year end (2020: £6.8 million).

The Group's RCF was amended subsequent to year end in October 2021. The RCF was reduced from £6.0 million to £4.0 million and the facility term was extended from November 2022 to June 2023. New covenants covering minimum liquidity and maximum capital expenditure were agreed for the period to the end of June 2022. Leverage (net debt to adjusted EBITDA) and interest cover covenants, tested quarterly, will commence on the first testing date of 30 September 2022 through to the end of the facility. 

Loss per share and dividends

Basic loss per share was 12.0 pence (2020: 101.5 pence). Adjusted loss per share was 2.2 pence (2020: 6.4 pence).

No dividends were paid in the year (2020: nil) and no dividends have been declared in respect of the year ended 2 October 2021 (2020: nil). Distributable reserves in the parent company, which at the year end are £8.6 million (2020: £20.4 million negative reserve), increased as a result of the fundraising which increased the share premium reserve and the subsequent capital reduction and transfer of the share premium reserve into distributable reserves following Court approval granted in June 2021. 

Statement of financial position

Intangible assets (at net book value) decreased by £0.2 million to £0.1 million (2020: £0.3 million). Amortisation in the year was £0.2 million (2020: £2.0 million). 

The property at Quadscot is owned by the Group and was marketed for sale after the site was closed in June 2020. As at 2 October 2021 the Group had sold 2 of its 3 conjoined units, generating proceeds of £0.4 million. The statement of financial position is showing the market value of the remaining property of £0.2 million (2020: £0.6 million) as an "Asset held for sale" under current assets. The remaining property was sold on 10 December 2021 for £0.2 million.

Net current assets (being current assets less current liabilities) decreased to £6.3 million (2020: £8.5 million) following RCF borrowings being reclassified to current from non-current liabilities. Non-current liabilities of £3.6 million (2020: £10.9 million) have decreased by £7.3 million, primarily as a result of the reclassification of RCF borrowings to current liabilities, as well as a reduction in RCF borrowings by £2.0 million. 

Net assets increased by 29% to £17.1 million (2020: £13.3 million) but net asset value per share decreased to 55 pence (2020: 72 pence) following the fundraising through the issue on 18 December 2020 of 12,471,998 new ordinary shares, taking our total ordinary shares in issue to 31,067,163.

James Locking

Chief Financial Officer

 

Consolidated statement of comprehensive income

For the 52 week period ended 2 October 2021

	Notes		52 weeks ended 2 October 2021	53 weeks ended 3 October 2020
			£'000	£'000
Revenue	1		25,284	25,403
Cost of sales			(18,569)	(20,054)
Gross profit			6,715	5,349
Administration expenses			(7,460)	(7,728)
Operating loss before amortisation, impairment and other exceptional costs			(745)	(2,379)
Separately disclosed items of administrative expenses:
Amortisation	4		(224)	(1,958)
Impairment	4		(1,773)	(13,878)
Other exceptional costs	5		(1,044)	(2,751)
Operating loss			(3,786)	(20,966)
Finance (costs)/income	2		(412)	977
Loss before taxation	3		(4,198)	(19,989)
Taxation	6		772	1,113
Loss for the period attributable to the owners of the parent			(3,426)	(18,876)
Other comprehensive income to be reclassified to profit or loss in subsequent periods: Currency exchange differences on translation of foreign operations			33	(13)
Total other comprehensive income/(expense)			33	(13)
Total comprehensive expense for the period attributable to the owners of the parent			(3,393)	(18,889)
Basic loss per share
From loss for the period	7		(12.0)p	(101.5)p
Diluted loss per share
From loss for the period	7		(12.0)p	(101.5)p

Consolidated statement of financial position

As at 2 October 2021

	Notes	2 October 2021	Restated 3 October 2020	Restated 28 September 2019
		£'000	£'000	£'000
Non-current assets
Goodwill		-	-	9,510
Intangible assets		101	325	6,598
Property, plant and equipment		13,100	14,910	14,142
Deferred tax asset		1,138	464	278
Other financial assets		-	-	7,350
		14,339	15,699	37,778
Current assets
Inventories		4,762	5,252	4,669
Trade and other receivables		9,061	7,067	9,590
Cash and cash equivalents		3,217	3,416	2,208
Asset held for sale		195	580	-
Other financial assets		-	3,074	-
Current tax		414	-	95
		17,649	19,389	16,562
Total assets		31,988	35,088	54,340
Current liabilities
Trade and other payables		(5,474)	(9,659)	(6,963)
Borrowings - revolving credit facility	8	(4,773)	-	(10,800)
Lease Liabilities	9	(1,110)	(1,209)	(656)
		(11,357)	(10,868)	(18,419)
Non-current liabilities
Other payables		(241)	(538)	(158)
Borrowings - revolving credit facility	8	-	(6,773)	-
Lease Liabilities	9	(2,245)	(2,843)	(2,116)
Deferred tax liabilities		(1,068)	(752)	(1,561)
		(3,554)	(10,906)	(3,835)
Total liabilities		(14,911)	(21,774)	(22,254)
Net assets		17,077	13,314	32,086
Equity
Share capital		1,553	930	930
Share premium account		-	26,172	26,172
Translation reserve		(260)	(293)	(280)
Retained earnings		15,784	(13,495)	5,264
Total equity		17,077	13,314	32,086

A restatement of the Consolidated statement of financial position as at 3 October 2020 and 28 September 2019 has been undertaken to correct an error, which had resulted in the incorrect presentation of contract assets and contract liabilities relating to ongoing contracts (see Note 12).

Consolidated statement of changes in equity

For the 52 week period ended 2 October 2021

		Share capital	Share premium account	Translation reserve	Retained earnings	Total equity
		£'000	£'000	£'000	£'000	£'000
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		-	-	-	(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
Shares issued		623	6,401	-	-	7,024
Share based payments		-	-	-	132	132
Capital reduction transfer		-	(32,573)	-	32,573	-
Transactions with owners		623	(26,172)	-	32,705	7,156
Loss for the period		-	-	-	(3,426)	(3,426)
Other comprehensive income: Exchange differences on translating foreign operations		-	-	33	-	33
Total comprehensive income/(expense)		-	-	33	(3,426)	(3,393)
Balance at 2 October 2021		1,553	-	(260)	15,784	17,077

Consolidated statement of cash flows

For the 52 week period ended 2 October 2021

	Notes	52 weeks ended 2 October 2021	53 weeks  ended 3 October 2020
		£'000	£'000
Operating activities
Cash flows from operating activities	10	(6,166)	1,707
Finance costs paid		(412)	(188)
Income tax refunded		-	213
Net cash (outflow)/inflow from operating activities		(6,578)	1,732
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		477	268
Proceeds from repayment of Promissory Note		3,074	2,000
Purchase of property, plant and equipment		(1,325)	(2,103)
Net cash generated from investing activities		2,226	3,607
Financing activities
Repayment of borrowings		(2,000)	(4,250)
Proceeds from new borrowings		-	223
Repayment of lease liabilities		(1,805)	(1,301)
Shares issued net of transaction costs		7,024	-
Proceeds from asset financing		934	1,197
Net cash generated from/(used in) financing activities		4,153	(4,131)
Net (decrease)/increase in cash and cash equivalents		(199)	1,208
Cash and cash equivalents at beginning of period		3,416	2,208
Cash and cash equivalents at end of period		3,217	3,416

Notes

Basis of preparation

The summary accounts are based on the consolidated financial statements that have been prepared in accordance with international accounting standards, in conformity with the requirements of the Companies Act 2006. The summary accounts and consolidated financial statements are made up to the Saturday nearest to the period end for each financial period.

Pressure Technologies plc, company number 06135104, is incorporated and domiciled in the United Kingdom. The registered office address is Pressure Technologies Building, Meadowhall Road, Sheffield, South Yorkshire, S9 1BT.

The Group has applied all accounting standards and interpretations issued relevant to its operations for the period ended 2 October 2021. The consolidated financial statements have been prepared on a going concern basis.

The summary accounts set out above do not constitute statutory accounts as defined by Section 434 of the UK Companies Act 2006. The summarised consolidated statement of comprehensive income, the summarised consolidated balance sheet at 2 October 2021, the summarised consolidated statement of comprehensive income, the summarised consolidated statement of changes in equity and the summarised consolidated statement of cash flows for the period then ended have been extracted from the Group's 2021 statutory financial statements upon which the auditor's opinion is unqualified and did not contain a statement under either sections 498(2) or 498(3) of the Companies Act 2006. The audit report for the period ended 3 October 2020 did not contain statements under sections 498(2) or 498(3) of the Companies Act 2006. The statutory financial statements for the period ended 3 October 2020 have been delivered to the Registrar of Companies. The 2 October 2021 accounts were approved by the directors on 17 January 2022 but have not yet 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 its "Annual Review of Corporate Reporting 2020/21" in October 2021. The Directors have considered this when preparing these financial statements.

The Group's Revolving Credit Facility (RCF) was amended subsequent to the year end in October 2021. The RCF was reduced from £6.0 million to £4.0 million and the facility term was extended from November 2022 to June 2023. New covenants covering minimum liquidity and maximum capital expenditure were agreed for the period to the end of June 2022. Leverage (net debt to adjusted EBITDA) and interest cover covenants, tested quarterly, will commence on the first testing date of 30 September 2022 through to the end of the facility.

Management have produced forecasts for the period up to March 2023 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 the current financial year and beyond and that the Group has sufficient cash reserves and headroom in the financial covenants to enable the Group to meet its obligations as they fall due for a period of at least 14 months from the date when these financial statements have been signed.  The Directors believe that, in the event that the assumptions in the forecast are not being realised such that a future potential covenant breach is anticipated, there are a number of mitigating actions that could be taken, including further cost reductions and cash management actions, that could help prevent a potential covenant breach from occurring.  After undertaking these assessments 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 2021

No new standards were applied during the year.

Adoption of new and revised standards

Amendments to IFRSs that are mandatorily effective for the current year

At the date of the authorisation of these financial statements, several new, but not yet effective, standards and amendments to existing standards, and interpretations have been published by the IASB. None of these standards or amendments to existing standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of pronouncement. The impact of new standards, amendments and interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group's financial statements.

Notes to the consolidated financial statements

1.  Segment analysis

 

The financial information by segment detailed below is frequently reviewed by the Chief Executive who has been identified as the Chief Operating Decision Maker (CODM).

For the 52 week period ended 2 October 2021

	Cylinders	Precision Machined Components	Central costs	Total
	£'000	£'000	£'000	£'000
Revenue from external customers	18,877	6,407	-	25,284
Gross profit/(loss)	6,102	696	(83)	6,715
Operating profit/(loss) before amortisation, impairment and other exceptional costs	2,834	(1,647)	(1,932)	(745)
Amortisation and impairment	(916)	(56)	(1,025)	(1,997)
Other exceptional costs	(250)	(501)	(293)	(1,044)
Operating profit/(loss)	1,668	(2,204)	(3,250)	(3,786)
Net finance costs	(82)	(85)	(245)	(412)
Profit/(loss) before tax	1,586	(2,289)	(3,495)	(4,198)
Segmental net assets/(liabilities) *	8,569	9,352	(844)	17,077
Other segment information:
Capital expenditure - property, plant and equipment	795	487	217	1,499
Depreciation	632	818	205	1,655
Amortisation	87	56	81	224

 

* 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.

 

Notes to the consolidated financial statements (continued)

 

1.  Segment analysis (continued)

For the 53 week period ended 3 October 2020

		Cylinders	Precision Machined Components	Central costs	Total
		£'000	£'000	£'000	£'000
Revenue		11,218	14,185	-	25,403
Gross profit/(loss)		2,912	2,461	(24)	5,349
Operating loss before amortisation, impairment and other exceptional costs		(58)	(656)	(1,665)	(2,379)
Amortisation and impairment		(88)	(1,788)	(13,960)	(15,836)
Other exceptional costs		(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
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.

Notes to the consolidated financial statements (continued)

1.  Segment analysis (continued)

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

Revenue	2021			2020
	Cylinders	Precision Machined Components	Total	Cylinders	Precision Machined Components	Total
	£'000	£'000	£'000	£'000	£'000	£'000
United Kingdom	15,270	2,950	18,220	8,509	7,544	16,053
France	1,164	-	1,164	303	228	531
Germany	616	-	616	805	-	805
Italy	-	776	776	-	1,673	1,673
Romania	-	916	916	-	1,709	1,709
Switzerland	748	-	748	-	-	-
Rest of Europe	172	171	343	787	68	855
South Korea	294	-	294	-	-	-
Norway	23	306	329	596	-	596
USA	-	798	798	-	591	591
Rest of the World	590	490	1,080	218	2,372	2,590
	18,877	6,407	25,284	11,218	14,185	25,403

The Group's largest customer, which is reported within the Cylinders segment, contributed 26% to the Group's revenue (2020: 13%, reported in the Cylinders segment).

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

Revenue	2021	2020
	£'000	£'000
Oil and gas	6,076	14,901
Defence	11,070	5,142
Industrial	5,949	5,219
Hydrogen energy	2,189	141
	25,284	25,403

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	2021		2020
	Cylinders	Precision Machined Components	Cylinders	Precision Machined Components
	£'000	£'000	£'000	£'000
Sale of goods transferred at a point in time	1,080	6,006	2,201	13,736
Sale of goods transferred over time	15,594	-	5,222	-
Rendering of services	2,203	401	3,795	449
	18,877	6,407	11,218	14,185

Notes to the consolidated financial statements (continued)

1.  Segment analysis (continued)

The following aggregated amounts of transaction values relate to the performance obligations from existing contracts that are unsatisfied or partially unsatisfied as at 2 October 2021:

Revenue expected in future periods	2022
	£'000
Sale of goods - Cylinders	4,982

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. 

						2021	2020
						£'000	£'000
Non-current assets						14,247	15,699
Additions to property, plant and equipment						1,499	3,434

 

2.  Finance (costs)/income

	2021	2020
	£'000	£'000
Interest receivable	40	419
Interest payable on bank loans and overdrafts	(332)	(455)
Interest payable on lease liabilities	(120)	(153)
Profit on sale of associate	-	297
Profit on sale of shareholding in GRN Inc.	-	1,895
Modification of Promissory Note receivable	-	(1,026)
	(412)	977

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 2019. In February 2021, the Group received the final proceeds of £3,074,000 in relation to the Promissory Note.

3. Loss before taxation

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

	2021	2020
	£'000	£'000
Depreciation of property, plant and equipment - owned assets	956	1,376
Depreciation of property, plant and equipment - leased assets	699	350
Loss/(profit) on disposal of fixed assets	78	(61)
Amortisation of intangible assets	224	1,958
Amortisation of grants receivable	(40)	(40)
Staff costs - excluding share based payments	8,899	10,995
Cost of inventories recognised as an expense	12,821	12,448
Operating lease rentals:
- Machinery and equipment	-	19
Foreign currency loss	-	69
Share based payments	132	117

 

 

Notes to the consolidated financial statements (continued)

 

4.  Amortisation and Impairment

	2021	2020
	£'000	£'000
Amortisation of intangible assets	224	1,958
Goodwill and intangible assets impairment	-	13,878
Property impairment	655	-
ERP system impairment	1,118	-
	1,997	15,836

 

Within tangible fixed assets, land and buildings include the Meadowhall Road site which, as part of the Group's discussions with its bankers, was valued by an independent chartered surveyor, Lambert Smith Hampton, during the period resulting in an impairment of £655,000. The Directors are satisfied that the carrying value is comparable with market value.

Included in tangible fixed assets within Assets under Construction is £829,000 along with associated costs of £289,000 held in prepayments, relating to the internal and third-party costs incurred in the current and prior years associated with the development of a new ERP system in the CSC division. As also noted in the prior year, the Covid-19 pandemic has resulted in delays in finalising this project such that it has effectively been at standstill for nearly two years.  Improvements to the incumbent ERP system in CSC have recently become available which the Group is currently assessing for suitability and cost.  Whilst this review is not yet complete, an initial assessment indicates that upgrading the incumbent system to the recently announced software version, rather than completing the development of the new system, may be a more appropriate and cost-effective route to improving the ERP system in CSC.  As a result, the Directors have determined that there is an indicator of impairment of the Asset under Construction and the associated prepayment relating to the development of CSC's ERP system. Following an impairment review, the Directors have recorded an impairment charge of £1,118,000 to fully write off this asset.  This impairment has been reflected as a non-cash exceptional item.

 

5. Other exceptional costs

	2021	2020
	£'000	£'000
Reorganisation and redundancy	398	424
Impairment of inventory and work in progress	240	504
Costs in relation to HSE fine	-	700
Closure of Precision Machined Components facility (Quadscot)	166	690
Other costs (including bank refinancing and legal costs)	240	433
	1,044	2,751

 

The reorganisation and redundancy costs relate to costs of restructuring across the Group. No further reorganisation costs are expected in FY22 unless market conditions deteriorate further as a result of the Covid-19 pandemic. In addition, no further costs are expected in FY22 relating to the closure of the Quadscot facility or impairment of inventory.

Notes to the consolidated financial statements (continued)

 

6.  Taxation

	2021	2020
	£'000	£'000
Current tax credit
Over provision in respect of prior years	(414)	(118)
	(414)	(118)
Deferred tax credit
Origination and reversal of temporary differences	(421)	(43)
Impairment of intangible assets	-	(1,013)
Under provision in respect of prior years	63	61
	(358)	(995)
Total taxation credit	(772)	(1,113)

Corporation tax is calculated at 19% (2020: 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 loss per the consolidated statement of comprehensive income as follows:

			2021 £'000		2020 £'000
Loss before taxation				(4,198)	(19,989)
Theoretical tax credit at UK corporation tax rate 19% (2020: 19%)				(798)	(3,798)
Effect of charges/(credits):
- non-deductible expenses				(3)	74
- non-deductible exceptional items				393	2,970
- research and development allowance				-	(204)
- adjustments in respect of prior years				(385)	(57)
- change in taxation rates				16	-
- differences in deferred tax rates				(17)	31
- losses not previously recognised now utilised				22	(129)
Total taxation credit				(772)	(1,113)

An increase in the UK corporation tax rate to 25% was substantively enacted in May 2021 and is due to take effect from 1 April 2023. As the most significant timing differences are not expected to unwind until 2023 or later, the deferred tax rate was changed from 19% to 25% in the period.

 

Notes to the consolidated financial statements (continued)

 

 

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 share options. As the Group made a loss after taxation for the financial year there is no dilution to take place.

On 18 December 2020 the Group undertook a fundraising through the issue of 12,471,998 new ordinary shares.

For the 52 week period ended 2 October 2021

			Total £'000
Loss after tax			(3,426)
			No.
Weighted average number of shares - basic			28,463,119
Basic loss per share			(12.0)p
Diluted loss per share			(12.0)p

 

The Group adjusted loss per share is calculated as follows:

			Total £'000
Loss after tax			(3,426)
Amortisation and Impairment (see Note 4)			1,997
Other exceptional costs (see Note 5)			1,044
Theoretical tax effect of the above adjustments			(241)
Adjusted loss			(626)
Adjusted loss per share			(2.2)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 between periods.

The theoretical tax effect is based on applying a 19% tax rate to the adjustments for amortisation and other exceptional costs incurred.

Notes to the consolidated financial statements (continued)

7. Loss per ordinary share (continued)

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
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 Impairment (see Note 4)			15,836
Other exceptional costs (see Note 5)			2,751
Theoretical tax effect of the above adjustments			(895)
Adjusted loss			(1,184)
Adjusted loss per share			(6.4)p

 

 

8. Borrowings

	2021 £'000	2020 £'000
Current
Revolving credit facility	4,773	-
Non-current
Revolving credit facility	-	6,773
Total borrowings	4,773	6,773

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

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 March 2021, the RCF was reduced to £6 million from September 2021, following the sales of the Quadscot properties during the year.

The Group's RCF was drawn at £4.8 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 and machinery assets to which they relate.

Notes to the consolidated financial statements (continued)

8. Borrowings (continued)

The Group's RCF was amended subsequent to the period end on 22 October 2021. The RCF was reduced from £6.0 million to £4.0 million and the facility term was extended from November 2022 to June 2023. New covenants covering minimum liquidity and maximum capital expenditure were agreed for the period to the end of June 2022. Leverage (net debt to adjusted EBITDA) and interest cover covenants, tested quarterly, will commence on the first testing date of 30 September 2022 through to the end of the facility.

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 borrowing facilities are as follows:

	2021	2020
	£'000	£'000
Due for settlement within one year:
Revolving credit facility	4,773	-
Due for settlement after one year:
Revolving credit facility	-	6,773

The Group has the following undrawn borrowing facilities at the year end:

	2021	2020
	£'000	£'000
Expiring within one year	1,227	-
Expiring beyond one year	-	5,227

Subsequent to year end, as noted above, the RCF was reduced from £6.0 million to £4.0 million and the facility term was extended from November 2022 to June 2023.

9. Lease Liabilities

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

	2021	2020
	£'000	£'000
Current
Asset finance lease liabilities	810	955
Right of use asset lease liabilities	300	254
	1,110	1,209
Non-current
Asset finance lease liabilities	1,521	2,003
Right of use asset lease liabilities	724	840
	2,245	2,843

Notes to the consolidated financial statements (continued)

9. Lease Liabilities (continued)

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. 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 2 October 2021 were as follows:

	Within one  year	Over one to five years	Total
	£'000	£'000	£'000
2 October 2021
Lease payments	1,225	2,419	3,644
Finance costs	(115)	(174)	(289)
Net present value	1,110	2,245	3,355

	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

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 in these financial statements.

Notes to the consolidated financial statements (continued)

10. Consolidated cash flow statement

	2021	Restated 2020
	£'000	£'000
Loss after tax	(3,426)	(18,876)
Adjustments for:
Finance costs - net	412	189
Depreciation of property, plant and equipment	1,655	1,726
Amortisation of intangible assets	224	1,958
Share option costs	132	117
Income tax credit	(772)	(1,113)
Loss/(profit) on disposal of property, plant and equipment	78	(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	1,484	13,878
Changes in working capital:
Decrease/(increase) in inventories	490	(137)
(Increase)/decrease in trade and other receivables	(1,995)	2,474
(Decrease)/increase in trade and other payables	(4,448)	2,718
Cash (outflows)/inflows from operating activities	(6,166)	1,707

A restatement of the various components of Changes in working capital in the prior period has been undertaken to correct an error in the Consolidated statement of financial position as at 3 October 2020 and 28 October 2019, which resulted in the incorrect presentation of contract assets and contract liabilities relating to ongoing contracts (see Note 12). The cash inflow from operating activities in the prior period of £1,707,000 has not been impacted by this restatement.

11. Net Debt Reconciliation

		Borrowings	Leases	Cash & Bank	Total
		£'000	£'000	£'000	£'000
Cost
At 28 September 2019		(10,800)	(2,772)	2,208	(11,364)
Cash flows		-	-	1,208	1,208
Repayments		4,250	1,301	-	5,551
New facilities - asset finance leases		(223)	(1,197)	-	(1,420)
New facilities - right of use leases		-	(1,384)	-	(1,384)
At 3 October 2020		(6,773)	(4,052)	3,416	(7,409)
Cash flows		-	-	(199)	(199)
Repayments		2,000	1,805	-	3,805
New facilities - asset finance leases		-	(934)	-	(934)
New facilities - right of use leases		-	(174)	-	(174)
At 2 October 2021		(4,773)	(3,355)	3,217	(4,911)

Notes to the consolidated financial statements (continued)

 

12.  Prior Period Adjustment

A restatement of Consolidated statement of financial position as at 3 October 2020 and 28 September 2019 has been undertaken to correct an error, which resulted in the incorrect presentation of contract assets and contract liabilities relating to ongoing contracts.

As at 3 October 2020, the impact of the restatement was as follows:-

	2020	2020		2020
	Presented	Adjustment		Restated
	£'000	£'000		£'000
Inventories - Work in progress	2,716	(235)		2,481
Trade and other receivables - Prepayments and accrued income	1,613	(362)		1,251
Trade and other receivables - Contract assets	5,296	(4,114)	1,182
Trade and other payables - Deferred income	(6,497)	4,562	(1,935)
Trade and other payables - Contract liabilities	(505)	149	(356)
Total	2,623	-		2,623

As at 28 September 2019, the impact of the restatement was as follows:-

	2019	2019		2019
	Presented	Adjustment		Restated
	£'000	£'000		£'000
Inventories - Work in progress	3,010	(446)		2,564
Trade and other receivables - Prepayments and accrued income	1,002	(48)		954
Trade and other receivables - Contract assets	1,056	97	1,153
Trade and other payables - Deferred income	(2,353)	1,453	(900)
Trade and other payables - Contract liabilities	-	(1,056)	(1,056)
Total	2,715	-		2,715

 

13.   Subsequent events

The Group's Revolving Credit Facility (RCF) was amended subsequent to the year end in October 2021. The RCF was reduced from £6.0 million to £4.0 million and the facility term was extended from November 2022 to June 2023. New covenants covering minimum liquidity and maximum capital expenditure were agreed for the period to the end of June 2022. Leverage (net debt to adjusted EBITDA) and interest cover covenants, tested quarterly, will commence on the first testing date of 30 September 2022 through to the end of the facility.

 

 

 

 

 

END

 

 

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