TIDMPRES
RNS Number : 1154X
Pressure Technologies PLC
17 December 2019
17 December 2019
Pressure Technologies plc
("Pressure Technologies" or the "Group")
2019 Preliminary Results
Pressure Technologies (AIM: PRES), the specialist engineering
group, announces its preliminary results for the year ended 28
September 2019.
Financial Results(*)
-- Group revenue up 34% to GBP28.3 million (2018: GBP21.2
million)
-- Gross profit up 27% to GBP9.2m (2018: GBP7.2 million)
-- Adjusted operating profit more than doubled to GBP2.2
million (2018: GBP1.0 million)
-- Reported loss before tax of GBP0.5 million (2018: loss
GBP1.7 million)
-- Adjusted earnings per share of 7.8p (2018: 2.9p)
-- Reported basic loss per share of (2.1)p (2018: (7.5)p)
-- Adjusted net operating cash inflow(**) GBP2.0 million
(2018: GBP1.9 million)
-- Net debt of GBP11.4 million (2018: GBP6.7 million)
-- Operating cash outflow from discontinued operations of
GBP2.5 million
-- Working capital increased by GBP2.2 million to GBP7.4
million (2018: GBP5.2 million)
* continuing operations only excluding acquisition costs,
amortisation on acquired businesses and exceptional charges and
credits
** before cash outflow for exceptional costs
Operational Highlights
-- Improved trading performance and operating results in line with
market expectations, driven by UK and export defence contracts
and increasing momentum in the global oil and gas market
-- Strategic progress made with the divestment of non-core operations,
recovery of profitability and organic growth in both divisions
-- Integration of Precision Machined Components (PMC) subsidiary
companies completed, with operational improvements made across
the division demonstrating scalability and growth, with margins
improved since year end
-- Order backlog in PMC took longer to clear than anticipated,
leading to an increase in working capital during the year. Working
capital is expected to unwind with improving cash flows during
the first half of 2020 as operational changes take effect and
the backlog of overdue orders is delivered
-- PMC order intake for the year to November 2019 reached the highest
level for over five years, with record contract awards contributing
to a divisional order book 70% higher than a year ago. Revenues
from new customers represented 11% of the divisional total in
2019, demonstrating progress in reducing customer concentrations
-- Strong and increasingly diverse order book in Chesterfield Special
Cylinders (CSC), following the largest ever non-defence contract
award from EDF Energy and further orders secured in the emerging
hydrogen energy market since year end
-- Outlook for CSC in established UK and export defence programmes
remains strong and further growth is forecast in recurring revenue
from through-life Integrity Management services.
Chris Walters, Chief Executive of Pressure Technologies,
said:
"I am pleased with the significant improvement in trading
performance this year. We have made important management and
operational changes within the business over the course of the
year. I am pleased with the way our teams have responded during
this transitional period and encouraged by the progress we have
made with organisational development and culture that is key to
delivering sustainable growth.
Order backlog and delayed output increased working capital
during the year, but I am confident that this will unwind early in
the new year as the backlog is cleared and operational initiatives
take effect, delivering shorter lead times, improved margins and
recovering cash flows.
Good strategic progress and the favourable conditions in core
markets underpin our confidence in the outlook for 2020 and beyond.
Both divisions hold strong order books with reduced customer
concentrations and have recently posted record contract wins from
an increasingly diverse and buoyant sales pipeline."
For further information, please contact:
Pressure Technologies plc Tel: 0114 257 3616
Chris Walters, Chief Executive pressuretech@investor-focus.co.uk
Joanna Allen, Chief Financial
Officer
N+1 Singer (Nomad and Broker) Tel: 0207 496 3000
Mark Taylor / Lauren Kettle
IFC Advisory Ltd (Financial PR Tel: 0203 934 6630
and IR)
Graham Herring / Tim Metcalfe
/ Zach Cohen
COMPANY DESCRIPTION
Company description - www.pressuretechnologies.com
With its head office in Sheffield, the Pressure Technologies
Group was founded on its leading market position as a designer and
manufacturer of high-integrity, safety-critical components and
systems serving global supply chains in oil and gas, defence,
industrial gases and hydrogen energy markets.
The Group has two divisions, Precision Machined Components and
Chesterfield Special Cylinders.
Precision Machined Components (PMC) - www.pt-pmc.com
-- Precision Machined Components includes the Al-Met, Roota
Engineering, Quadscot and Martract brands.
Chesterfield Special Cylinders (CSC) -
www.chesterfieldcylinders.com
-- Chesterfield Special Cylinders, Sheffield, includes CSC Deutschland
Gmbh, which is based in Dorsten, Germany.
CHAIRMAN'S STATEMENT
Overview
Good progress has been made in both divisions with positive
market conditions prevailing and, whilst 2019 had its challenges, I
am pleased to report substantially improved trading results.
Many steps have been taken to prepare the business for the
improving conditions in our core markets. As momentum builds in the
oil and gas industry and our presence grows further in global
defence markets and the emerging hydrogen energy sector, we have
strengthened and diversified our order book and have a clearer view
of our customers' project pipeline today than at any point in the
past five years.
The strategy review undertaken during the first half of the year
confirmed focus on organic growth opportunities and I am pleased
with the progress made in this phase of executing the strategy.
As reported at the interim results, we were pleased to complete
in June the sale of our Alternative Energy division to
Vancouver-based Creation Capital Corporation LLC, now renamed
Greenlane Renewables Inc. This strategic divestment gives the Group
a clear focus on the growth and development of its core specialist
engineering activities.
In the remaining Group businesses, key initiatives covering
sales effectiveness, production planning and efficiency,
engineering processes and supply chain management are expected to
drive the delivery of organic revenue growth and margin
improvement, which is a key priority in the second phase of our
strategy.
Results
Overall Group revenue increased by 34% to GBP28.3 million (2018:
GBP21.2 million) and the adjusted operating profit for the period
increased to GBP2.2 million (2018: GBP1.0 million). This
improvement represents an increase in return on revenue to 8%
(2018: 5%) and reflects, in particular, the strength of UK and
overseas defence projects in our Chesterfield Special Cylinders
division (CSC).
Favourable conditions in the oil and gas market have driven
higher revenue and profitability in our Precision Machined
Components (PMC) division this year and the order book is at the
highest level for five years. However, operational improvements
have been slower to come through than we had planned, impacting
performance through the second half. The changes made over the past
year have been fundamental to building a stronger and more scalable
base for PMC that will help us realise the potential for
growth.
It remains a priority to reduce the overall leverage of the
Group, whilst supporting the business with the capital investment
programme and achieving a minimum 20% headroom in our facility
covenants. The Group's Revolving Credit Facility (RCF) was
renegotiated in September and the new facility was fully documented
and signed post year end on 10 December 2019.
The Board has again resolved that no dividend shall be paid to
shareholders this year as investment in the organic growth strategy
remains the priority for capitalising on the improving market
conditions.
In November we announced that a trial had commenced in respect
of the prosecution by the Health & Safety Executive (HSE)
following the fatal accident at CSC in June 2015. At the conclusion
of the trial, in late November, the jury delivered a guilty verdict
pursuant to Section 2 of the Health and Safety at Work Act 1974 and
we await the sentencing hearing which is now expected to take place
in the New Year. The outcome of the sentencing hearing is uncertain
and whilst the range of possible outcomes is significant, the
Directors are satisfied that the Group can continue to prepare its
financial statements on a going concern basis. Further details are
in Note 11 of this preliminary announcement.
People
We have recently received the results from our second people
engagement survey undertaken with 'Best Companies'. This shows
encouraging progress with an increase in both the number of
respondents and engagement scores and it is pleasing to note that a
number of respondent groups have been classed as 'Ones to Watch'. I
would like to thank all our teams for their hard work throughout
the year and their contributions during a period of significant
change.
We reported in June that we were looking to strengthen the
board. The search and selection process is nearing completion and
we expect to make new non-executive appointments early in the New
Year.
Outlook
The current trading performance, order intake and strategic
progress made in both divisions give the board confidence in the
outlook for 2020.
Neil MacDonald
Independent Chairman
BUSINESS REVIEW
The past year has been a period of significant change for the
Group and I am pleased with the developments and progress we have
made.
When I joined the business just over a year ago, I commented
that we were preparing for improving conditions in the oil and gas
market and these conditions have contributed to a considerable
improvement in our trading performance.
We have made important management and operational changes within
the business over the course of the year. I am pleased with the way
our teams have responded during this transitional period and have
been encouraged by the progress made with organisational
development and culture that is key to delivering sustainable
growth and continuous improvement.
Good strategic progress and the favourable conditions in core
markets underpin our confidence in the outlook for 2020. Both
divisions hold strong order books with reduced customer
concentrations and have recently posted record contract wins from
an increasingly diverse and buoyant sales pipeline.
Performance
Overall Group revenue for the year was GBP28.3 million (2018:
GBP21.2 million), up 34% as a result of stronger performance in
both divisions, driven by UK and overseas defence contracts,
increasing momentum in the oil and gas market and the delivery of
our first orders to hydrogen energy customers.
2019 2018 2017 2016
GBPm GBPm GBPm GBPm
Group Revenue 28.3 21.2 18.8 20.3
====== ====== ====== ======
Oil & Gas 16.3 12.4 10.6 12.5
====== ====== ====== ======
Defence 9.1 6.4 6.4 6.5
====== ====== ====== ======
Industrial Gases 2.2 2.4 1.8 1.3
====== ====== ====== ======
Hydrogen Energy 0.7 - - -
====== ====== ====== ======
Group Operating
Profit 2.2 1.0 1.6 1.0
====== ====== ====== ======
Adjusted operating profit more than doubled to GBP2.2 million
(2018: GBP1.0 million), driven by increased revenue in both
divisions, but offset by a lower overall gross margin and
investment in operational improvements, sales and support
functions.
Order backlog and delayed output increased working capital and
slowed cash generation, especially during the second half. Overall
leverage remains higher than our internal target of 20% headroom,
with debt levels impacted further by cash outflows in the year from
discontinued operations. We expect working capital to unwind early
in 2020 as the order backlog clears and operational initiatives
take effect, delivering shorter lead times, improved margins and
recovering cash flows.
The strategy review undertaken during the first half of the year
confirmed areas of strategic focus and at the interims we set out
our three-phase vision for growth over the next five years.
Priorities for the first phase included the divestment of non-core
divisions, returning the Group to profitable trading and
establishing the foundations for organic growth in the second
phase.
I am pleased to report that we have made good progress in the
first phase, with the divestment of the Alternative Energy division
in June, enabling the Group to focus on its core divisions. We have
started to demonstrate the Group's organic growth potential across
both divisions, with increased sales volume from existing
customers, new customer acquisitions and major contract wins in new
target markets. Investment in new equipment and skills has enabled
us to deliver an extended range of products, while improving
quality and efficiency.
Looking beyond the financial performance, there are encouraging
signs of the cultural and behavioural changes necessary to deliver
stronger performance and sustainable growth. Further progress has
been made in modernising and standardising people management
policies with dedicated HR support in each division. This has
helped the divisional management teams navigate recent changes
effectively and enabled recruitment, training and welfare issues to
be managed successfully across the divisions. We have also
strengthened our IT systems and infrastructure during the year to
support operational improvements and enhanced information
security.
Divisional Review
Chesterfield Special Cylinders (CSC)
2019 2018 2017 2016
GBPm GBPm GBPm GBPm
Revenue 13.9 9.9 8.4 9.5
------ ------ ------ ------
Oil and Gas 2.2 1.4 0.8 1.8
------ ------ ------ ------
Defence 9.1 6.4 6.4 6.4
------ ------ ------ ------
Industrial gases 1.9 2.1 1.2 1.3
------ ------ ------ ------
Hydrogen energy 0.7 - - -
------ ------ ------ ------
Gross Margin (%) 36% 35% 41% 34%
------ ------ ------ ------
Operating Profit 2.1 1.1 1.1 1.1
------ ------ ------ ------
Return on Revenue
(%) 15% 11% 13% 11%
------ ------ ------ ------
Divisional revenue for the year was up 39% to GBP13.9 million
(2018: GBP9.9 million), driven by UK and export defence contracts,
offshore drilling unit air pressure vessel orders, Integrity
Management deployments and our first cylinder deliveries for
hydrogen refuelling station projects.
Total defence market revenue increased by 42% to GBP9.1 million
(2018: GBP6.4 million), representing 66% of divisional sales.
Revenue for the supply of ultra-large cylinders to UK defence
contracts nearly doubled to GBP4.1 million (2018: GBP2.1 million),
driven by the phasing of activity on the Dreadnought submarine
programme. Revenue for export naval contracts increased by 12% to
GBP3.2 million (2018: GBP2.8 million) for new construction projects
in Germany, France and South Korea.
Total oil and gas market revenue increased by 55% to GBP2.2
million (2018: GBP1.4 million), representing 16% of divisional
sales. Performance was driven by ultra-large cylinder demand for
semi-submersible drilling unit projects in Singapore for our new
customer MH Wirth.
The first ultra-large cylinders for hydrogen refuelling stations
in the UK and France delivered revenues of GBP0.7 million,
representing 5% of divisional sales in 2019 and demonstrating
strategic progress in this exciting target market.
Industrial gases market revenue fell to GBP1.9 million (2018:
GBP2.1 million) due to a reduction in space programme projects, but
the order book was strengthened significantly at year end with a
major contract win with EDF Energy.
Integrity Management services delivered strong growth for the
fourth consecutive year, with total revenue up 48% to GBP1.2
million (2018: GBP0.8 million). Revenue from UK naval deployments
increased by 82% to GBP0.6 million, driven by the steady increase
in adoption of in-situ inspection and recertification across the
the UK submarine and surface vessel fleets. Non-naval revenues
increased by 18% to GBP0.2 million with major new customer
acquisitions in the diving support vessel market.
Overall divisional gross margin increased to 36% (2018: 35%),
with higher margin UK naval projects in the first half offset by
export naval contracts and non-defence projects in the second
half.
Operating profit for the division increased by GBP1.0 million to
GBP2.1m (2018: GBP1.1 million) and return on revenue increased to
15% (2018: 11%).
We have focused on the key strategic initiatives set out
previously at the interims to support the organic growth plan and
the results of these changes have already been seen with the
division securing new projects in both traditional and new target
markets. The investment in technology made this year will advance
our handling and finishing processes, bringing improved production
efficiency and throughput capacity that will underpin the delivery
of improved margins.
Successful diversification into the nuclear power generation
market came during the year with our largest ever non-defence
contract award from EDF Energy for the supply of ultra-large
nitrogen storage cylinders to four sites in the UK. This market
also presents a major recurring revenue opportunity for
through-life technical support and Integrity Management services
for installed cylinder fleets in the UK and worldwide.
I am pleased with performance for the year at CSC and with the
progress made in strategic focus areas. The order book for 2020 is
strong and the division is well positioned to benefit from exciting
opportunities in the sales pipeline across all target markets.
Precision Machined Components (PMC)
2019 2018 2017 2016
GBPm GBPm GBPm GBPm
Revenue 14.4 11.2 10.4 10.7
------ ------ ------ ------
Oil and Gas 14.0 11.0 9.8 10.7
------ ------ ------ ------
Industrial gases 0.4 0.2 0.6 -
------ ------ ------ ------
Gross Margin
(%) 29% 33% 35% 31%
------ ------ ------ ------
Operating Profit 1.9 1.5 1.8 1.4
------ ------ ------ ------
Return on Sales
(%) 13% 13% 18% 13%
------ ------ ------ ------
Divisional revenue for the year was GBP14.4 million (2018:
GBP11.2 million), up 30% as a result of increased order volumes
from oil and gas customers as momentum continues to build in the
market.
Demand for highly specialised drilling, production and valve
components from OEM customers increased sharply in the first half
of the year and steadily thereafter, driven by the continuing
recovery in global exploration and production activity.
Market dynamics and improved sales effectiveness helped increase
order intake by 27% over the year to September 2019. However, the
sharp upturn in order intake and customer demand for shorter lead
times strained the PMC businesses as capacity and operational
improvements lagged the increase in secured orders. This resulted
in delayed output and adversely affected margins and cash flows in
the second half. Delays were compounded by constraints in the
supply chain for specialist coatings and treatments, which further
extended delivery schedules. To address this, management and
operational changes were made during the year, along with
significant capacity increases and improvements to production
planning and the management of subcontracted processes. Good
progress has been made with the recovery of on-time delivery
performance as noted by our customers and the improvement of
margins and cash generation is expected in the first half of
2020.
Changes made to drive the turnaround at the Quadscot site, after
four years of loss making performance, failed to deliver sufficient
improvement through the first half. Output delays and increasing
backlog through the second half resulted in site output falling
significantly behind plan, which adversely impacted divisional
performance and contributed to a lower than forecast improvement in
margin for the second half. However, operational improvements made
since year end have positioned Quadscot to recover profitability
and be a positive contributor to the division in 2020. These
changes demonstrate the developments that have been required during
the initial phase of the strategy.
Overall divisional gross margin reduced to 29% (2018: 33%),
impacted by the delayed output, new customer onboarding, extended
commissioning of new machining centres and early recruitment to
build operational capacity.
Operating profit for the division increased by 25% to GBP1.9
million (2018: GBP1.5 million). Return on revenue remained flat at
13%.
The strengthening of the divisional sales team with assigned
responsibilities for key accounts has delivered significant growth
from existing and returning customers across all sites.
Considerable progress was also made during the year with new major
customer acquisitions, including Halliburton, GE Baker Hughes,
TechnipFMC, Aker and Schlumberger, widening regional coverage and
extending product scope. Revenues from new customers represented
11% of the divisional total in 2019 and more than 35% at both
Quadscot and Martract sites, showing good progress in reducing
long-standing customer concentrations.
Production headcount increased significantly over the year and
further recruitment is ongoing for specialist skills in milling,
turning and grinding at all sites to support the growing order book
and improving outlook. The introduction of seven new advanced CNC
machine tools during the year completed the current planned capital
expenditure programme, with no major expenditure planned for 2020.
The new machine tools have extended product scope and range to meet
the current and future demand from our target customers and to
compete in new areas. This major investment will help shorten lead
times and improve margins across a wider product range.
Management changes and the new divisional operating structure
for PMC have been fundamental to planning for sustainable growth
and underpin scalability across the division. New leadership and
the integrated structure has enabled improved collaboration between
site teams and a single business information system now gives
visibility of performance in sales, production, quality and safety
across the division. Centralised production planning implemented in
the second half supports increased sharing and utilisation of
capacity and skills between sites and will improve margins and
reduce lead times.
It has taken longer than expected to address and recover
performance in the division, but I am pleased with the progress
made more recently with operational improvements, lead time
reduction and the recovery of quality and on-time delivery
performance, as better planning, production control and supplier
management take effect across all sites.
Strategic Progress
In March 2019, we completed a strategic review and set out the
vision for growth in three phases:
Phase 1 - Refocus (to mid-2020)
-- Divestment of non-core divisions
-- Recover profitability and cash generation
-- Confirm strategic focus areas, develop growth plans
Phase 2 - Deliver Organic Growth (from mid-2019)
-- Grow revenue and margin from existing and new customers
-- Grow revenue and margin from extended product scopes and emerging sectors
-- Grow margins through operational improvements
Phase 3 - Accelerate Growth & Build Scale (from
late-2021)
-- Growth from new sectors
-- Growth from new regions and regional operations
-- Scale from acquisitions
As reported, progress has been made under Phase 1 with the
divestment of the Alternative Energy Division in the year and the
Engineered Products Division in the prior year. The recovery of
profitable performance and cash generation for the remaining two
divisions is clear in the reported results and further progress is
expected. The strategy review confirmed the areas of strategic
focus and the key initiatives that will deliver growth and create
value over the next three to five years.
Organic growth has already been demonstrated in both divisions,
with increased revenue from existing customers, new customer
acquisitions and major contract wins in new target markets. We have
also started to see the positive impact of investment in new
equipment through improved product scope, quality performance and
efficiency gains. This strategic progress supports the divisional
outlook for 2020 and beyond.
Outlook
Chesterfield Special Cylinders
The outlook for UK naval contracts remains strong, with order
book visibility to 2023 for Dreadnought submarine and Type-26
frigate programmes. The strategic focus for UK naval programmes is
to increase contract margins through stronger project management,
operational improvements and supply chain efficiencies. Savings
have already been identified in the supply chain and are expected
to deliver margin improvements for UK and export projects from
2020.
Export defence contracts were strong in 2019, but project
phasing will drive fewer orders and lower revenues in 2020. A
recovery of submarine build programmes for foreign navies is
expected in 2021, with major projects in the pipeline for
Australian and Indonesian navies. As the preferred supplier to the
world's NATO-friendly navies, the strategic focus is to maximise
our share of new construction programmes and to develop an export
market for through-life technical support and Integrity Management
services, thereby growing recurring revenue and margin from in-situ
testing and recertification.
The outlook in oil and gas markets for drilling unit air
pressure vessels and diving support systems remains unpredictable,
but we are well positioned for a recovery and the opportunity
pipeline is currently stronger for 2020 and 2021 than previously
expected. We are seeing a slow but steady increase in new project
enquiries for air pressure vessels, with returning customers
looking for product and system innovation, where we can add
value.
Momentum is building steadily in the hydrogen energy market as
the focus on low-emission and low-carbon transportation and power
generation increases globally. Following the delivery of two
breakthrough contracts over the past year for projects in the UK
and Europe, we are well positioned to win further contracts
independently and with our tendering partners for the supply and
through-life support of ultra-large high pressure cylinders for
hydrogen refuelling stations worldwide. A new contract was secured
post year end with another major hydrogen refuelling systems
integrator and a growing opportunities pipeline underpins our
confidence in the outlook for significant growth in this strategic
focus area from 2021.
Our Integrity Management services are highly valued by existing
customers and have tremendous growth potential in the UK and
worldwide. The outlook for these recurring revenue services remains
positive with increasing demand from the UK submarine and surface
vessel fleet maintenance programme for in-situ cylinder testing and
recertification. Diving support vessel contracts are expected to
deliver further growth for in-situ inspection in 2020, following
several new customer acquisitions and increasing offshore
activity.
Precision Machined Components
Momentum in the oil and gas market continues and demand for
highly specialised drilling, production and valve components from
existing and new customers is expected to remain strong through
2020. Our customers forecast further growth in 2021 as activity
ramps up on their offshore engineering projects in the US Gulf of
Mexico, South America, West Africa, Australia and the North
Sea.
We have increasingly diverse opportunities in a growing sales
pipeline. Deep water subsea tree components, landing strings and
flow control and valve assemblies have been dominant, while
enquiries for down-hole analytic components are growing
steadily.
New product development undertaken with customers during 2018
and 2019 has resulted in orders for 2020 delivery, demonstrating
the value of time invested in these collaborative projects.
I am pleased to report that order intake continued to accelerate
post year end, with record levels in November 2019 and the highest
twelve-month intake for over five years. The Al-Met team secured
their largest ever contract from a major oilfield services
customer, providing recurring monthly revenues for the year ahead.
The divisional order book at the end of November 2019 was 70%
higher than in 2018, with the Roota site having increased their
order book threefold in twelve months. The Quadscot site continues
to show strong growth from newly acquired customers, with an order
book over 40% higher than at year end.
The completion of divisional integration and operational
improvements together with new machine tools and the ongoing
investment in capacity are expected to increase margins in the year
ahead and allow the division to capitalise further on opportunities
for growth and diversification in a strong oil and gas market.
We remain committed to creating value for shareholders through
the delivery of our vision for growth. Strategic progress and
favourable conditions in target markets underpin confidence in the
outlook for 2020, with both divisions holding strong order books,
posting recent major contract wins and seeing increasingly diverse
opportunities in the sales pipeline. Our focus is to ensure that
operational performance, margins and cash generation keep pace with
the progress made in sales.
I look forward to the year ahead with confidence as we start to
see the benefits of operational changes and strategic progress made
during the course of this year. I would like to thank the
management team and all colleagues for their commitment and support
through this busy year of change.
Chris Walters
Chief Executive
Financial review
Group revenue(*) Gross profit Adjusted operating Return on revenue(***)
Up 34% to margin down 1.8ppt profit(**) up up 2.9ppt
GBP28.3m to 32.4% GBP1.2m to 7.9%
(2018: GBP21.2m) (2018: 34.2%) to GBP2.2m (2018: 5.0%)
(2018: GBP1.0m)
Net operating Closing net Total loss reduced Net working capital
cash inflow(****) RCF Debt increased to GBP(1.4)m as a % of revenue
GBP2.0m to GBP8.6m (2018: GBP(5.1)m) increased to
(2018: GBP1.9m) (2018: GBP5.7m) 26%
(2018: 25%)
===================== ==================== ========================
* all information relates to continuing operations only, prior
period comparatives have been restated to remove discontinued
operations
**Operating profit excluding acquisition costs, amortisation on
acquired businesses and exceptional charges and credits.
*** Adjusted operating profit divided by revenue
****before cash outflow for exceptional costs and excluding cash
flows associated with discontinued operations
I am pleased to present the results of what has been another
very busy year for the Group.
Following the disposal of PT Biogas Holdings Limited in the year
and Hydratron Limited in the prior year, all results and costs for
the Alternative Energy division and the Engineered Products
division have been presented as discontinued operations. The
following trading commentary is in respect of continuing operations
only.
The Group revenue has increased 34% on the prior year. As
expected, phasing of large defence projects in CSC was weighted to
the first half although overall Divisional revenue was up 39% on
the prior year. PMC's second half was 11% up on the first half
reflecting the continued momentum in the oil & gas sector and
three consecutive reported halves of revenue growth.
We stepped up investment in new equipment and technology with
GBP2.8 million of new plant and machinery, GBP2.1 million of which
was on new machining centres in the PMC division to add capacity
and capability. The use of asset finance facilities to fund this
programme efficiently resulted in new asset finance leases of
GBP2.0 million in the year. The R&D tax credit relief remains
above 4% of revenue with claims in 2019 expected to be in excess of
this (2018: 4.8%).
Our Group Head of IT, which is a new role, joined the group in
December 2018 to lead the Group's IT strategy and associated risk
management. In the year a further GBP0.8 million has been invested
in IT systems and technology to standardise systems and improve
infrastructure and communications. We have also made further
progress with automation of data analysis and real-time management
information.
In the short-term, the financial priority continues to be
focused on the reduction of net debt with working capital
management at the fore. Financial covenants on the Group's
revolving credit banking facility (RCF) were complied with
throughout the period. The operating cash inflows overall were
positive, however the phasing of contracts in CSC and the order
backlog in PMC adversely impacted working capital in the fourth
quarter and cash conversion was lower than targeted at 0.5x (target
over 1x), this will unwind through 2020. These factors, along with
the significant cash outflow of discontinued operations up to the
date of disposal, have led to an overall increase in net RCF debt
(excluding finance leases) at the year-end of GBP2.9 million.
Following the disposal of the Alternative Energy division a
re-financing was undertaken to review the banking facilities
required to support the Group's post-divestment strategy, as set
out in the interim financial statements. The Group's RCF, which was
put in place in October 2014, had been extended a number of times,
and was due to expire in April 2020. Fully committed and credit
approved terms were reached for the replacement RCF facility with
the incumbent bank in September 2019. Documentation and signing was
completed 10 December 2019 and, in accordance with IAS 1, the
borrowing has been classified as a current liability due within
6-12 months at the balance sheet date. At the date of these
preliminary results the facility is classified as a long-term
liability.
The new facility is on substantially the same terms, with the
exception of a higher and fixed margin. The total facility is GBP12
million until the end of November 2020 and GBP10 million for the
remainder of the term and expires in December 2021.
Trading results
2019 was the year of adoption of IFRS 15 'Revenue from contracts
with customers', which we have applied using the modified
retrospective approach without restatement as it had no material
impact on previously reported results or retained earnings. In
accordance with the transition guidance, IFRS 15 has only been
applied to contracts that were incomplete as at 30 September 2018
and the adoption of this new standard has only impacted the CSC
Division, specifically the ultra-large cylinder contracts.
CSC
Revenue increased nearly 40% on the prior year due principally
to the volume of activity and number of projects completed or in
progress at the year-end but also due to the adoption of IFRS 15
'Revenue from contracts with customers' which for CSC has resulted
in GBP1.7 million of revenue being recognised in the period ended
28 September 2019 that would have been recognised in future periods
if IFRS 15 had not been adopted. Consideration has been given to
the potential impact of recognition over time on the results for
the period ended 29 September 2018, but due to the mix of ongoing
contracts at 29 September 2018, the impact would have been
immaterial.
Eleven contracts that are categorised as 'recognised over time'
were in progress at the end of the year with seven customers.
GBP5.2 million of future revenue on these contracts relates to as
yet unfulfilled performance obligations which are due for delivery
in 2020.
Gross Profit has increased significantly in the year almost
entirely due to the volume of activity, there was a 0.7ppt increase
in the gross margin which reflects the actual mix of work in the
year.
As a direct result of the volume of activity CSCs operating
profit has nearly doubled to GBP2.1 million (2018: GBP1.1 million)
and there has been a 4ppt increase in the Return on Revenue in the
year to 15.1% (2018: 11.1%).
PMC
PMC revenue has increased almost 30% as volume of activity and
opportunity in the Oil & Gas market has continued through the
year. PMC's second half was 11% up on the first half reflecting the
continued momentum in the oil & gas sector and three
consecutive reported halves of revenue growth.
Gross Profit has not increased at the same rate as sales and
there was a 3.9ppt reduction in Gross Margin, compared to 2018, to
29%. The most significant contributor to this was the poor
performance, particularly in the second half, of the Quadscot site
which failed to deliver sufficient improvement through the first
half. Output delays and increasing backlog through the second half
resulted in a site output falling significantly behind plan, which
adversely impacted gross margin.
Operating profit increased 25% to GBP1.9m which represents a
Return on Revenue of 13%, a 0.4ppt fall from 2018.
Central costs
Unallocated central costs (before M&A, amortisation on
acquired businesses and exceptional charges) were GBP1.7 million
(2018: GBP1.6 million).
In respect of the Group's various share option plans there was a
net cost in the year of GBP0.1 million (2018: net nil).
Exceptional items
Reorganisation and redundancy costs in the year were GBP0.5
million (2018: GBP0.5 million), which predominantly relate to the
restructuring of the PMC division.
Amortisation costs were GBP1.8 million (2018: GBP1.8
million).
Discontinued operations
On 4 June 2019, the Group completed the disposal of the entire
issued share capital of its subsidiary, PT Biogas Holdings Limited
which was the holding company for the Group's Alternative Energy
division, to Creation Capital Corp, a capital pool company listed
on the TSX Venture Exchange. The business was reported by the Group
as the Alternative Energy division.
In the prior year on 7 June 2018, the Group completed the
disposal of the entire issued share capital of its subsidiary,
Hydratron Limited, to Pryme Group Limited, majority owned by
Simmons Private Equity LP. This business was reported by the Group
as the Engineered Products division.
The GBP1.2 million loss from discontinued operations in 2019
comprises the operating loss of the Alternative Energy Division for
the period up to disposal, costs to sell and impairment charges
associated with the business. The prior year loss from discontinued
operations of GBP3.7 million includes the results of both
disposals. Further details are in Note 3 of this preliminary
announcement.
Taxation
The tax credit for the year was GBP0.1 million (2018: GBP0.3
million).
The loss before tax, impact of the disposal of the Alternative
Energy division and adjustments in respect of prior years have all
contributed to the credit in 2019. The applicable current tax rate
for the year is 19% (2018: 19%). The utilisation of losses and
R&D tax credits have resulted in a lower effective tax rate
than the current rate of tax.
R&D tax credit benefits across the Group in respect of 2019
are projected to be around GBP1.2 million (2018: GBP1.0
million).
Corporation tax refunded in the year totalled GBP0.2 million
(2018: paid GBP0.1 million), which relates to the UK. Tax in
overseas territories is minimal.
Foreign Exchange
The Group has exposure to movements in foreign exchange rates
related to both transactional trading and translation of overseas
investments.
In the year under review, the principal exposure which arose
from trading activities, was to movements in the value of the Euro,
the CA Dollar and the US Dollar relative to Sterling. As the Group
companies both buy and sell in overseas currencies, particularly
the Euro and the US Dollar, there is a degree of natural hedge
already in place.
Following the disposal of the Alternative Energy Division the
overall exposure of the group to currency fluctuations in respect
of trading has reduced. The Group is however more exposed to the
translational impact of the CA Dollar in respect of the Greenlane
Renewables Inc Promissory Note, 50% of which is denominated in that
currency. Where appropriate, and when timing of future cash flows
are able to be reliably estimated, forward contracts are taken out
to cover exposure.
In 2019 the net gain recognised in adjusted operating profit in
respect of realised and unrealised transactions in Euro, US Dollar,
Canadian Dollar and New Zealand Dollar was immaterial (2018:
GBP0.1m). In 2019 a loss of GBP0.1 million (2018: loss GBP0.1
million) was initially recorded below adjusted operating profit in
respect of the retranslation of foreign operations. On disposal of
the Alternative Energy Division all historic accumulated gains and
losses on retranslation of its foreign operations were removed from
the translation reserve and reclassified to the profit and loss
account, which resulted in a GBP0.3 million gain being recorded
below adjusted operating profit.
As at 28 September 2019 there were no forward contracts in place
(2018: none).
Financing, cash flow and leverage
Operating cash inflow for continuing operations before movements
in working capital and reorganisation and redundancy costs was
GBP3.7 million (2018: GBP1.9 million). After a net working capital
outflow of GBP2.0 million (2018: neutral), cash generated from
continuing operations was GBP2.0 million (2018: GBP1.9
million).
Cash outflow in respect of discontinued operations trading up to
the point of disposal was GBP2.5 million (2018: GBP0.4 million).
Gross cash consideration in respect of the disposal of the
Alternative Energy division was GBP2.0 million (2018: cash inflow
on disposal of EP GBP1.1 million).
Cash outflow in the year in respect of exceptional costs was
GBP1.6 million (2018: GBP1.0 million), this includes cash flows in
relation to certain items that were recognised in the prior year
profit and loss.
Net RCF debt was GBP8.6 million (2018: GBP5.7 million), the
GBP2.9 million increase driven primarily by working capital
outflow, planned capital expenditure and the operating cash outflow
of the AE division prior to disposal. The Group's GBP15 million
facility was GBP10.8 million drawn at the year-end (2018: GBP11.8
million). The continued capital investment programme has resulted
in a net increase in the finance lease debt of GBP1.7 million to
GBP2.8 million (2018: GBP1.1 million) leading to total net debt at
the year-end of GBP11.4 million. Capital expenditure will reduce in
2020 as planned, following the significant investments made in
2019.
The increase in adjusted EBITDA has more than off-set the
increase in net debt which means the measured Net Debt to Adjusted
EBITDA leverage ratio reduced to 1.8:1 at 28 September 2019 (2018:
2.3:1). All facility covenants have been complied with throughout
the period.
Earnings per share and dividends
Adjusted earnings per share increased to 7.8 pence (2018: 2.9
pence) for continuing operations. Basic loss per share was (2.1)
pence (2018: (7.5) loss per share) for continuing operations.
No dividends were paid in the year (2018: nil) and no dividends
have been declared in respect of the year ended 28 September 2019
(2018: nil). Distributable reserves in the parent company decreased
61% to GBP6.7 million (2018: GBP16.9 million), driven by the
disposal of the Alternative Energy Division. The parent company
also has GBP26.2 million of share premium reserves which is readily
convertible to a distributable reserve.
Statement of financial position
Goodwill and intangible assets (at cost) decreased by GBP10.8
million to GBP25.0 million (2018: GBP35.8 million). GBP11.0 million
related to the disposal of the Alternative Energy Division, the
balance was investment in new product development and investment in
IT systems. Amortisation in the year on continuing operations was
GBP1.8 million (2018: GBP1.8 million).
The consideration received on the disposal of the Alternative
Energy Division included, in addition to cash on completion, shares
in the newly listed Greenlane Renewables Inc and a Promissory Note.
These are recognised as 'Other long-term financial assets' and in
accordance with IFRS 9 the equity investment has been classified as
a FVTPL asset and the promissory note is held at amortised
cost.
Net current assets, excluding the renegotiated RCF borrowings,
decreased to GBP9.1 million (2018: GBP9.6 million). Non-current
liabilities, including the renegotiated RCF borrowings now
classified as long-term, increased slightly to GBP14.7 million
(2018: GBP14.4 million) after borrowings increased to GBP13.0
million (2018: GBP12.6 million).
Net assets decreased by 3.8% to GBP32.1 million (2018: GBP33.4
million) and net asset value per share decreased to 176 pence
(2018: 180 pence).
Joanna Allen
Chief Financial Officer
Consolidated statement of comprehensive income
For the 52 week period ended 28 September 2019
Notes 52 weeks 52 weeks
ended ended
28 September 29 September
2019 2018
GBP'000 GBP'000
Revenue 1 28,291 21,167
Cost of sales (19,119) (13,932)
Gross profit 9,172 7,235
Administration expenses (6,938) (6,186)
Operating profit before M&A costs,
amortisation and exceptional charges
and credits 1 2,234 1,049
Separately disclosed items of administrative
expenses:
Amortisation and M&A related exceptional
items (1,832) (1,816)
Other exceptional charges (450) (511)
Operating loss (48) (1,278)
Finance costs (467) (400)
Loss before taxation 2 (515) (1,678)
Taxation 4 126 313
Loss for the period from continuing
operations (389) (1,365)
Discontinued operations
Loss for the period from discontinued
operations 3 (1,203) (3,723)
Loss for the period attributable
to the owners of the parent (1,592) (5,088)
Other comprehensive income to be
reclassified to profit or loss in
subsequent periods:
Currency exchange differences on
translation of foreign operations (140) (60)
Other comprehensive income not to
be reclassified to profit or loss
in subsequent periods:
Exchange differences on translation
of discontinued foreign operations 325 -
Total comprehensive income for
the period attributable to the owners
of the parent (1,407) (5,148)
Basic earnings per share
From continuing operations (2.1)p (7.5)p
From discontinued operations (6.5)p (20.5)p
From loss for the period (8.6)p (28.0)p
Diluted earnings per share
From continuing operations (2.1)p (7.5)p
From discontinued operations (6.5)p (20.5)p
From loss for the period (8.6)p (28.0)p
Consolidated statement of financial position
As at 28 September 2019
Notes 28 September 29 September
2019 2018
GBP'000 GBP'000
Non-current assets
Goodwill 6 9,510 14,370
Intangible assets 6,598 11,444
Property, plant and equipment 14,042 12,032
Deferred tax asset 278 402
Other long-term financial assets 7 7,350 -
37,778 38,248
Current assets
Inventories 5,115 4,383
Trade and other receivables 9,541 11,998
Cash and cash equivalents 2,208 6,140
Current tax 4 95 35
16,959 22,556
Total assets 54,737 60,804
Current liabilities
Trade and other payables (7,360) (12,745)
Borrowings - asset finance leases 8 (656) (241)
Borrowings - revolving credit facility* 8 (10,800) -
(18,816) (12,986)
Non-current liabilities
Other payables (158) (198)
Borrowings - asset finance leases 8 (2,116) (836)
Borrowings - revolving credit facility* 8 - (11,800)
Deferred tax liabilities (1,561) (1,591)
(3,835) (14,425)
Total liabilities (22,651) (27,411)
Net assets 32,086 33,393
Equity
Share capital 930 930
Share premium account 26,172 26,172
Translation reserve (280) (465)
Retained earnings 5,264 6,756
Total equity 32,086 33,393
*The Group's RCF, which was put in place in October 2014 had
been extended a number of times, and was due to expire in April
2020. Committed and credit approved terms were reached for the
replacement RCF facility with the incumbent bank in September 2019.
Documentation and signing was completed 10 December 2019 and, in
accordance with IAS 1, the borrowing has been classified as a
current liability due within 6-12 months at the balance sheet date.
At the date of these preliminary results the facility is classified
as a long-term liability.
Consolidated statement of changes in equity
For the 52 week period ended 28 September 2019
Profit
Share and
Notes Share premium Translation loss Total
capital account reserve account equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 30 September
2017 725 21,637 (405) 11,846 33,803
Share based payments - - - (2) (2)
Shares issued 205 4,535 - - 4,740
Transactions with
owners 205 4,535 - (2) 4,738
Loss for the period
- continuing operations - - - (1,365) (1,365)
Loss for the period
- discontinued operations - - - (3,723) (3,723)
Other comprehensive
income:
Exchange differences
on translating foreign
operations - - (60) - (60)
Total comprehensive
income - - (60) (5,088) (5,148)
Balance at 29 September
2018 930 26,172 (465) 6,756 33,393
Share based payments - - - 100 100
Transactions with
owners - - - 100 100
Loss for the period
- continuing operations - - - (389) (389)
Loss for the period
- discontinued operations - - - (1,203) (1,203)
Other comprehensive
income:
Exchange differences
on translating foreign
operations - - (140) - (140)
Other comprehensive
income:
Exchange differences
on translation of
discontinued foreign
operations - - 325 - 325
Total comprehensive
income - - 185 (1,592) (1,407)
Balance at 28 September
2019 930 26,172 (280) 5,264 32,086
Consolidated statement of cash flows
For the 52 week period ended 28 September 2019
Notes 52 weeks 52 weeks
ended ended
28 September 29 September
2019 2018
GBP'000 GBP'000
Operating activities
Cash flows from operating activities 9 628 291
Finance costs paid (464) (394)
Income tax (paid) / refunded 159 (56)
Cash flows from discontinued operations (2,534) -
Net cash outflow from operating activities (2,211) (159)
Investing activities
Proceeds from sale of fixed assets - 127
Purchase of property, plant and equipment (3,693) (1,463)
Cash inflow on disposal of subsidiaries
net of cash disposed of 1,277 1,088
Net cash used in investing activities (2,416) (248)
Financing activities
Repayment of borrowings (1,307) (3,438)
Proceeds from lease financing 2,002 454
Shares issued - 4,740
Net cash from financing activities 695 1,756
Net (decrease) / increase in cash and
cash equivalents (3,932) 1,349
Cash and cash equivalents at beginning
of period 6,140 4,791
Cash and cash equivalents at end of
period 2,208 6,140
Notes
Basis of preparation
The financial information set out in this preliminary
announcement does not constitute statutory accounts as defined by
section 434 of the Companies Act 2006. It has been prepared in
accordance with the recognition and measurement principles of
International Financial Reporting Standards (IFRS) adopted for use
in the European Union, including IFRIC interpretations issued by
the International Accounting Standards Board, and in accordance
with the AIM rules and is not therefore in full compliance with
IFRS. The principal accounting policies of the Group, with the
exception of new accounting standards adopted in the period, have
remained unchanged from those set out in the Group's 2018 annual
report. The financial statements have been prepared under the
historical cost convention, except for derivative financial
instruments which are carried at fair value.
The financial information for the period ended 28 September 2019
was approved by the Board on 16 December 2019 and has been
extracted from the Group's financial statements upon which the
auditor's opinion is unmodified and does not include a statement
under section 498(2) or (3) of the Companies Act 2006.
The statutory accounts for the period ended 29 September 2019
will be posted to shareholders at least 21 days before the Annual
General Meeting and made available on our website
www.pressuretechnologies.com. In due course, they will be delivered
to the Registrar of Companies. The statutory accounts for the
period ended 29 September 2018 have been delivered to the Registrar
of Companies.
Going concern
The financial statements have been prepared on a going concern
basis.
The Group's renegotiated revolving credit facility expires in
December 2021 (see note 8) and management have produced forecasts
for all business units which have been reviewed by the Directors.
These demonstrate the Group is forecast to generate profits and
cash in 2019/2020 and beyond and that the Group has sufficient cash
reserves and headroom in financial covenants to enable the Group to
meet its obligations as they fall due for a period of at least 12
months from the date when these financial statements have been
signed.
Management have modelled the financial covenants in the
forecasts and no breach is expected.
The Contingent Liability disclosed in Note 11 to this
preliminary announcement is a critical judgement in respect of
going concern. Uncertainty over the outcome of the sentencing
hearing arises in particular in relation to the following:
-- the level of culpability;
-- the likelihood of harm;
-- the matrix applied and starting point of the fine; and
-- mitigations presented
In relation to the Sentencing Guidelines and the quantum of any
fine specific consideration has also been given to:
-- Sentencing mitigation factors;
-- Rights of appeal;
-- Time to pay;
-- Alternative sources of finance; and that
-- The fine should be proportionate to the overall means of the
offender in accordance with section 164 of the Criminal Justice Act
2003
As part of the assessment process a number of scenarios have
been modelled that consider the wide range of potential outcomes of
the Contingent Liability. Management have sought expert option to
inform their assessment, however there remains inherent uncertainty
as to the outcome of the sentencing hearing and therefore the
potential mitigations which leads to a material uncertainty which
may cast significant doubt on the Group's ability to continue as a
going concern
Nevertheless, after undertaking the assessments they have, and
considering the uncertainties set out above, the Directors have a
reasonable expectation that the Group has adequate resources to
continue to operate for the foreseeable future and for these
reasons they continue to adopt the going concern basis for
preparing the financial statements.
New Standards adopted as at 30 September 2018
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 replaces IAS 18 'Revenue', IAS 11 'Construction
Contracts' and several revenue-related interpretations. As part of
the transition to IFRS 15 the Group have assessed whether the IFRS
15 criteria for the recognition of revenue over time are met. This
has resulted in GBP1.7 million of revenue being recognised in the
period ended 28 September 2019 that would have been recognised in
future periods if IFRS 15 had not been adopted. Consideration has
been given to the potential impact of recognition over time on the
results for the period ended 29 September 2018, but due to the mix
of ongoing contracts at 29 September 2018, the impact would have
been immaterial.
The new standard has been applied using the modified
retrospective approach without restatement as it had no material
impact on previously reported results or retained earnings. In
accordance with the transition guidance, IFRS 15 has only been
applied to contracts that were incomplete as at 29 September
2018.
IFRS 15 does not include any guidance on how to account for
loss-making contracts. Accordingly, such contracts are accounted
for using the guidance in IAS 37 'Provisions, Contingent
Liabilities and Contingent Assets'.
Under IAS 37, the assessment of whether a provision needs to be
recognised takes place at the contract level and there are no
segmentation criteria to apply. As a result, there are some
instances where loss provisions recognised in the past have not
been recognised under IFRS 15 because the contract as a whole is
profitable. In addition, when two or more contracts entered into at
or near the same time are required to be combined for accounting
purposes, IFRS 15 requires the Group to perform the assessment of
whether the contract is onerous at the level of the combined
contracts. The Group also notes that the amount of loss accrued in
respect of a loss-making contract under IAS 11 takes into account
an appropriate allocation of construction overheads. This contrasts
with IAS 37 where loss accruals may be lower as they are based on
the identification of 'unavoidable costs'. There were no onerous
contracts identified on adoption or during the year.
IFRS 9 'Financial Instruments'
IFRS 9 replaces IAS 39 'Financial Instruments: Recognition and
Measurement'. It makes major changes to the previous guidance on
the classification and measurement of financial assets and
introduces an 'expected credit loss' model for impairment of
financial assets.
When adopting IFRS 9, the Group has applied transitional relief
and opted not to restate prior periods.
The adoption of IFRS 9 has impacted the impairment of financial
assets to which the expected credit loss model applied. This
affects the Group's trade receivables. For contract assets arising
from IFRS 15 and trade receivables, the Group applies a simplified
model of recognising lifetime expected credit losses as these items
do not have a significant financing component.
The financial assets are initially measured at fair value and
subsequently measured at amortised cost.
As the accounting for financial liabilities remains largely the
same under IFRS 9 compared to IAS 39, the Group's financial
liabilities were not impacted by the adoption of IFRS 9. The
Group's financial liabilities include borrowings and trade and
other payables.
1. Segment analysis
The financial information by segment detailed below is
frequently reviewed by the Chief Executive who has been identified
as the Chief Operating Decision Maker (CODM).
For the 52 week period ended 28 September 2019
Precision
Machined Central
Cylinders Components costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue
- total 13,860 14,449 - 28,309
- revenue from other
segments - (18) - (18)
- intra segment revenue - - - -
from discontinued operations
Revenue from external
customers 13,860 14,431 - 28,291
Gross Profit 4,996 4,198 (22) 9,172
Operating profit / (loss)
before M&A costs, amortisation
and exceptional charges
and credits 2,089 1,879 (1,734) 2,234
Amortisation and M&A
related exceptional
items - (1,750) (82) (1,832)
Other exceptional charges - (398) (52) (450)
Operating profit / (loss) 2,089 (269) (1,868) (48)
Net finance costs (15) (30) (422) (467)
Profit / (loss) before
tax 2,074 (299) (2,290) (515)
Segmental net assets
* 7,946 54,403 (30,263) 32,086
Other segment information:
Capital expenditure
- property, plant and
equipment 1,359 2,080 13 3,452
Depreciation 505 733 119 1,357
Amortisation - 1,750 82 1,832
* Segmental net assets comprise the net assets of each division
adjusted to reflect the elimination of the cost of investment in
subsidiaries and the provision of financing loans provided by
Pressure Technologies plc.
For the 52 week period ended 29 September 2018
Precision
Machined Central
Cylinders Components costs Total
GBP'000 GBP'000 GBP'000 GBP'000
Revenue
- total 9,942 11,551 - 21,493
- revenue from other
segments - (83) - (83)
- intra segment revenue
from discontinued operations - (243) - (243)
Revenue from external
customers 9,942 11,225 - 21,167
Gross Profit 3,511 3,694 30 7,235
Operating profit /
(loss) before M&A costs,
amortisation and exceptional
charges and credits 1,099 1,501 (1,551) 1,049
Amortisation and M&A
related exceptional
items - (1,741) (75) (1,816)
Other exceptional charges (27) (60) (424) (511)
Operating profit /
(loss) 1,072 (300) (2,050) (1,278)
Net finance costs (15) (8) (377) (400)
Profit / (loss) before
tax 1,057 (308) (2,427) (1,678)
Segmental net assets
* 6,392 54,254 (39,045) 21,601
Other segment information:
Capital expenditure
- property, plant and
equipment 410 600 18 1,028
Depreciation 473 635 125 1,233
Amortisation - 1,741 75 1,816
* Segmental net assets comprise the net assets of each division
adjusted to reflect the elimination of the cost of investment in
subsidiaries and the provision of financing loans provided by
Pressure Technologies plc
The Group's revenue disaggregated by primary geographical
markets is as follows:
Revenue 2019 2018
Precision Precision
Machined Machined
Cylinders Components Total Cylinders Components Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 8,388 7,411 15,799 5,123 5,904 11,027
Europe 2,701 4,467 7,168 2,363 3,758 6,121
Rest of the
World 2,771 2,553 5,324 2,456 1,563 4,019
13,860 14,431 28,291 9,942 11,225 21,167
The Group's largest customer, which is reported within the
Cylinders segment, contributed 13% to the Group's revenue (2018: 7%
reported in the Precision Machined Components segment).
The following table provides an analysis of the Group's revenue
by market.
Revenue 2019 2018
GBP'000 GBP'000
Oil and gas 16,272 12,405
Defence 9,118 6,420
Industrial gases 2,175 2,342
Hydrogen energy 726 -
28,291 21,167
The above table is provided for the benefit of shareholders. It
is not provided to the PT board or the CODM on a regular monthly
basis and consequently does not form part of the divisional
segmental analysis.
The Group's revenue disaggregated by pattern of revenue
recognition and category is as follows:
Revenue 2019 2018
Precision Precision
Machined Machined
Cylinders Components Cylinders Components
GBP'000 GBP'000 GBP'000 GBP'000
Sale of goods transferred
at a point in time 8,996 14,431 7,646 11,225
Sale of goods transferred 1,739 - - -
over time
Rendering of Services 3,125 - 2,296 -
13,860 14,431 9,942 11,225
The following aggregated amounts of transaction values relate to
the performance obligations from existing contracts that are
unsatisfied or partially unsatisfied as at 28 September 2019:
Revenue 2020
GBP'000
Sale of goods - Cylinders 5,158
The following table provides an analysis of the carrying amount
of non-current assets and additions to property, plant and
equipment.
2019 2018
United Rest of United Rest of
Kingdom the World Total Kingdom the World Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Non-current
assets 37,778 - 37,778 38,194 54 38,248
Additions to
property, plant
and equipment 3,452 - 3,452 1,030 63 1,093
2. Loss before taxation
Loss before taxation is stated after charging / (crediting):
2019 2018
GBP'000 GBP'000
Depreciation of property, plant and equipment
- owned assets 1,291 1,173
Depreciation of property, plant and equipment
- assets under finance lease and hire purchase
agreements 66 60
(Profit)/Loss on disposal of fixed assets - (73)
Amortisation of intangible assets acquired
on business combinations 1,832 1,816
Amortisation of grants receivable (40) (86)
Staff costs - excluding share based payments 9,765 8,654
Cost of inventories recognised as an expense 13,921 9,318
Operating lease rentals:
- Land and buildings 360 162
- Machinery and equipment 62 36
Foreign currency (gain)/loss 10 (102)
Share based payments 100 30
3. Discontinued operations
On 4 June 2019, and as separately communicated to Shareholders
on that date, the Group completed the disposal of the entire issued
share capital of its subsidiary, PT Biogas Holdings Limited
("Greenlane"), which was the holding company for the Group's
Alternative Energy division. The loss for the year ended 28
September 2019 relating to this division was GBP2.8m (period ended
29 September 2018: GBP1.1m).
In the previous financial year, on 7 June 2018, the Group
completed the disposal of its subsidiary Hydratron Limited. The
loss for the year ended 28 September 2019 relating to this entity
was GBPnil (period ended 29 September 2018: GBP1.9m).
The results of both disposals are reflected in the prior
period.
36 weeks
to 52 weeks
4 June to 29 September
2019 2018
GBP'000 GBP'000
Revenue 2,143 13,454
Expenses (4,271) (14,204)
Operating Loss pre-exceptional costs (2,128) (750)
Amortisation (558) (768)
Finance (costs)/income 3 (6)
Exceptional costs:
Reorganisation and redundancy - (192)
Costs to sell (1,694) (457)
Profit/(Loss) after tax on disposal (note
29) 3,095 (114)
Goodwill impairment - (1,692)
Loss before taxation (1,282) (3,967)
Taxation 79 244
Loss for the year (1,203) (3,723)
2019 2018
GBP'000 GBP'000
Cash flows from discontinued operations
Net cash used in operating activities (2,534) 755
Net cash from investing activities - (65)
Net cash from financing activities - 505
Net cash flows for the year (2,534) 1,195
4. Taxation
2019 2019 2019 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Continuing Discontinued Total Continuing Discontinued Total
Current tax
(credit)/expense
Current tax - - - - - -
Over provision in
respect of
prior years (220) (79) (299) - - -
Foreign tax - - - - - -
(220) (79) (299) - - -
Deferred tax
(credit)/expense
Origination and
reversal of
temporary
differences (133) (133) (231) (293) (524)
Deferred tax
assets no longer
recognised 52 52
Over provision in
respect of
prior years 227 227 (82) (3) (85)
94 94 (313) (244) (557)
Total taxation
(credit)/expense (126) (79) (205) (313) (244) (557)
Corporation tax is calculated at 19% (2018: 19%) of the
estimated assessable profit for the period. Deferred tax is
calculated at the rate applicable when the temporary differences
unwind.
The charge for the period can be reconciled to the profit per
the consolidated statement of comprehensive income as follows:
2019 2019 2019 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Continuing Discontinued Total Continuing Discontinued Total
Loss before taxation (515) (1,282) (1,797) (1,618) (4,027) (5,645)
Theoretical tax at UK corporation
tax rate 19% (2018: 19%) (98) (243) (341) (307) (765) (1,073)
Effect of (credits) / charges:
* non-deductible expenses and other timing differences 51 1 52 258 332 590
- - - - - -
* disallowable release of deferred consideration
- other disallowable acquisition - - - - - -
costs
- research and development
allowance (118) - (118) (68) - (68)
* adjustments in respect of prior years 7 (79) (72) (82) (3) (85)
* non-taxable profit on disposal - (293) (293)
* effect of unrealised losses on discontinued
operations - 535 535 (36) 76 40
* change in taxation rates - - - (5) - (5)
* effect of discontinued operations translation rates 62 - 62 - 11 11
* differences in corporation tax rates - - - - 54 54
* losses not previously recognised now utilised (30) - (30) (73) - (73)
* deferred tax assets no longer recognised - 52 52
Total taxation credit (126) (79) (205) (313) (244) (557)
5. Earnings per ordinary share
The calculation of the basic earnings per share is based on the
earnings attributable to ordinary shareholders divided by the
weighted average number of shares in issue during the period. The
adjusted earnings per share is also calculated based on the basic
weighted average number of shares.
The calculation of diluted earnings per share is based on the
basic earnings per share, adjusted to allow for the issue of shares
on the assumed conversion of all dilutive options.
For the 52 week period ended 28 September 2019
Continuing Discontinued Total
GBP'000 GBP'000 GBP'000
Loss after tax (389) (1,203) (1,592)
No.
Weighted average number of shares -
basic 18,595,165
Dilutive effect of share options 9,234
Weighted average number of shares -
diluted 18,604,399
Basic loss per share (2.1)p (6.5)p (8.6)p
Diluted loss per share (2.1)p (6.5)p (8.6)p
The Group adjusted earnings per share is calculated as
follows:
Loss after tax (389) (1,203) (1,592)
Amortisation and M&A related exceptional
items 1,832 558 2,390
Other exceptional charges and credits 450 (1,401) (951)
Theoretical tax effect of the above
adjustments (434) (428) (862)
Adjusted earnings 1,459 (2,474) (1,015)
Adjusted earnings per share 7.8p (13.3)p (5.5)p
For the 52 week period ended 29 September 2018
Continuing Discontinued Total
GBP'000 GBP'000 GBP'000
Loss after tax (1,365) (3,723) (5,088)
No.
Weighted average number of shares
- basic 18,178,407
Dilutive effect of share options 17,944
Weighted average number of shares
- diluted 18,196,351
Basic loss per share (7.5)p (20.5)p (28.0)p
Diluted loss per share (7.5)p (20.5)p (28.0)p
The Group adjusted loss per share is calculated as follows:
Continuing Discontinued Total
GBP'000 GBP'000 GBP'000
Loss after tax (1,365) (3.723) (5,088)
Amortisation and M&A related exceptional
items 1,816 2,460 4,276
Other exceptional charges and credits 511 763 1,274
Theoretical tax effect of the above
adjustments (442) (591) (1,033)
Adjusted earnings 520 (1,091) (571)
Adjusted earnings per share 2.9p (6.0)p (3.1)p
6. Goodwill
Total
GBP'000
Cost and gross carrying amount
At 30 September 2017 16,062
Removed upon business disposal (1,692)
At 29 September 2018 14,370
Removed upon business disposal (note 10) (4,860)
At 28 September 2019 9,510
Goodwill arising on consolidation represents the excess of the
fair value of the consideration given over the fair value of the
identifiable net assets acquired. The Group has Goodwill in
relation to the acquisitions shown above.
The Group tests annually for impairment, or more frequently if
there are indicators that goodwill might be impaired.
The recoverable amounts of the cash generating units (CGUs) are
determined from value in use calculations, covering a four year
forecast and applying a discount rate of 14.7% to the Precision
Machined Components Division (2018: 12.5%). The 2019 assessment,
following the reorganisation of PMC to an integrated division, has
been carried out at the divisional level.
The forecast is approved by management and the Board of
Directors, and is based on a bottom up assessment of costs and uses
the known and estimated pipeline. The forecasts used for years two
to four assume revenue growth, returning to levels achieved in 2014
by 2022 and into perpetuity, no long-term rate of growth or
inflation is incorporated into perpetuity.
Management's key assumptions are based on their past experience
and future expectations of the market over the longer term. The key
assumptions for the value in use calculations are those regarding
the discount rates, growth rates and expected changes to selling
prices and direct costs.
Apart from the considerations described in determining the
value-in-use of the cash generating unit above, the Group
management does not believe that possible changes in the
assumptions underlying the value in use calculation would have an
impact on the carrying value of goodwill.
After applying sensitivity analysis in respect of the results
and future cash flows, in particular for presumed growth rates and
discount rates, management believes that no impairment is required
for Precision Machined Components. Management is not aware of any
other changes that would necessitate changes to its key estimates.
At 28 September 2019, no reasonable expected change in the key
assumptions (including a 5% decrease in forecast cash flows) would
give rise to an impairment charge for Precision Machined
Components.
7. Other Long Term Financial Assets
2019 2018
GBP'000 GBP'000
Listed Security 1,250 -
Promissory Note 6,100 -
7,350 -
The Group holds a listed security asset which related entirely
to its shareholding in Greenlane Renewables and a Promissory Note
which formed part of the consideration on sale of the Alternative
Energy division in the year.
The fair value of the shareholding in Greenlane Renewables Inc
the following investments was determined by reference to published
price quotations in an active market (classified as level 1 in the
fair value hierarchy.
The promissory note is valued at amortised cost. The term of the
note is four years with a repayment date of 3 June 2023. The note
can be repaid any time within that time period. Interest is charged
at 7% rolled up into the principal unless a trigger event occurs
under the terms of the note which causes interest payments to be
satisfied in cash. On initial recognition the value was assessed to
be the face value. The note is denominated 50% in GBP and 50% in
Canadian dollars. The asset is held solely to collect associated
cash flows which relate to principal and interest only.
8. Borrowings
2019 2018
GBP'000 GBP'000
Non-current
Finance lease liabilities 2,116 836
Revolving credit facility - 11,800
2,116 12,636
Current
Finance lease liabilities 656 241
Revolving credit facility 10,800 -
11,456 241
Total borrowings 13,572 12,877
During the period the bank loan bore average coupons of 2% above
LIBOR annually.
During the year the Group had in place a GBP15 million Revolving
Credit Facility (RCF) which was drawn GBP10.8 million at the year
end date. These bank borrowings are secured on the property, plant
and equipment of the group by way of a debenture. Obligations under
finance leases are secured on the plant & machinery assets to
which they relate.
The Group's existing RCF, which was put in place in October 2014
had been extended a number of times, and was due to expire in April
2020. Committed and credit approved terms were reached for the
replacement RCF facility with the incumbent bank in September 2019.
Documentation and signing was completed 10 December 2019 and, in
accordance with IAS 1, the borrowing has been classified as a
current liability due within 6-12 months at the balance sheet date.
At the date of these preliminary results the facility is classified
as a long-term liability. The renegotiated facility, is on
substantially the same terms with the exception of a higher and
fixed margin. The total facility is GBP12 million until end
November 2020 and GBP10 million for the remainder of the term and
expires in December 2021.
The key financial covenant remains the leverage covenant, which
is tested quarterly, and has a maximum permitted net debt to
adjusted EBITDA ratio of 3.25:1 for the first four quarterly test
dates reducing to a maximum of 3:1 in the second year of the
term.
The carrying amount of the other bank borrowings is considered
to be a reasonable approximation of fair value. The carrying
amounts of the group's borrowings are all denominated in GBP.
The maturity profile of long-term loans is as follows:
2019 2018
GBP'000 GBP'000
Due within one year
Finance lease liabilities 656 241
Revolving credit facility 10,800 -
Due for settlement after one year
Finance lease liabilities 2,116 836
Revolving credit facility - 11,800
The group has the following undrawn borrowing facilities:
2019 2019
GBP'000 GBP'000
Expiring within one year 4,200 -
Expiring beyond one year - 3,200
9. Consolidated cash flow statement
2019 2018
GBP'000 GBP'000
Loss after tax - continuing operations (389) (1,365)
Loss after tax - discontinued operations (1,203) (3,723)
Adjustments for:
Finance costs - net 467 394
Depreciation of property, plant and equipment 1,377 1,378
Amortisation of intangible assets 2,390 2,584
Share option costs 100 (2)
Income tax credit (126) (589)
Profit on disposal of property, plant and
equipment - (69)
Goodwill impairment - 1,692
Changes in working capital:
Increase in inventories (1,234) (521)
Decrease / (increase) in trade and other receivables 402 (1,613)
(Decrease) / increase in trade and other payables (1,156) 2,125
Cash flows from operating activities 628 291
10. Business disposals
On 4 June 2019, and as separately communicated to Shareholders
on that date, the Group completed the disposal of the entire issued
share capital of its subsidiary, PT Biogas Holdings Limited which
was the holding company for the Group's Alternative Energy
division, to Creation Capital Corp, a capital pool company listed
on the TSX Venture Exchange. The business was reported by the Group
as the Alternative Energy segment.
Following the conclusion of the private placement by Creation
Capital Corp, the final consideration for the sale of GBP10.1m
comprised:
-- GBP2.0 million cash;
-- GBP2.0 million of Consideration Securities in Greenlane
Renewables Inc ("Greenlane"), representing a 21% holding after
satisfaction of certain fees and completion incentives; and
-- GBP6.1 million by way of a promissory note. The Promissory
Note will (i) be denominated 50 percent in pounds sterling and 50
percent in Canadian dollars; (ii) mature 48 months from Completion;
(iii) bear interest at the rate of 7% per annum and (iv) be secured
by a pledge of all of the issued and outstanding Greenlane Ordinary
Shares and all of the assets of Greenlane.
The table below summarises the profit on disposal of PT Biogas
Holdings Limited:
GBP'000
Sale Proceeds 10,100
=========
________
=========
Net book value of assets disposed of:
=========
Goodwill 4,860
=========
Property, plant & equipment 80
=========
Intangible assets 2,682
=========
Inventories 502
=========
Trade and other receivables 2,055
=========
Cash and cash equivalents 723
=========
Trade and other payables (4,222)
=========
________
=========
Profit on disposal 3,420
=========
Other Comprehensive Income
=========
Exchange differences on translation of discontinued
foreign operations (325)
=========
________
=========
Profit on disposal net of other comprehensive
income 3,095
=========
________
=========
11. Contingent liabilities
Following the fatal accident at Chesterfield Special Cylinders
Limited ("CSC") in June 2015, on 8 February 2019 upon the
conclusion of their investigation, the Health and Safety Executive
("HSE") advised CSC that it intended to prosecute CSC in relation
to the accident. During the preliminary hearing held on 6 March
2019 at Sheffield Magistrates Court, CSC submitted a plea of not
guilty to a charge brought by HSE pursuant to the Health and Safety
at Work Act 1974. The Company emphatically denied the charge
brought by the HSE and the case was referred to Sheffield Crown
Court and listed for trial. Trial proceedings concluded on 27
November 2019 and the jury delivered a guilty verdict pursuant to
Section 2 of the Health and Safety at Work Act 1974. A sentencing
hearing is expected to be scheduled in early 2020 and the financial
penalty will be assessed and determined by the Court at that time.
The Company continues to take legal advice on this matter and
further information in respect of the impact on the Company, and
the Group's ability to continue as a going concern is set out the
basis of preparation note.
On 1 February 2016 the Sentencing Council's new "Health and
Safety Offences, Corporate Manslaughter and Food Safety and Hygiene
Offences Definitive Guideline" (2016) came into force. The
guidelines, which are publicly available and can be found on the
Sentencing Council's website at:
www.https://www.sentencingcouncil.org.uk/offences/crown-court/item/organisations-breach-of-duty-of-employer-towards-employees-and-non-employees-breach-of-duty-of-self-employed-to-others-breach-of-health-and-safety-regulations/,
set a range of fines dependent on the levels of harm and
culpability, and the size of the Company being charged. These
levels are assessed by the Judge when sentencing and not at the
time of charges being brought. At this time, due to the nature of
the sentencing guidelines, it is not possible to determine with any
degree of certainty what financial penalties will be levied on CSC
as a result of the guilty verdict. At such time as the quantum of
the penalty is able to be reliably determined, further disclosure
and provision will be made in accordance with IAS 37 "Provisions,
Contingent Liabilities and Contingent Assets". Given the nature of
the contingent liability the Directors' have determined that the
exemption given in IAS 37 from providing all disclosures where
disclosure can be expected to prejudice seriously the position of
the entity in relation to the sentencing hearing is
appropriate.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR TRBFTMBABMJL
(END) Dow Jones Newswires
December 17, 2019 02:00 ET (07:00 GMT)
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