TIDMPRES
RNS Number : 0172E
Pressure Technologies PLC
03 November 2020
3 November 2020
Pressure Technologies plc
("Pressure Technologies" or the "Group")
FULL YEAR TRADING UPDATE
Pressure Technologies (AIM: PRES), the specialist engineering
group, provides a trading update for the year to 3 October
2020.
Whilst the Covid-19 pandemic has brought significant challenges
to our markets and operations over the course of the financial
year, the Group continues to make good progress against strategic
priorities. The investments made since 2019 have underpinned
growing diversification and sustainability in both divisions this
year, evidenced by new customer acquisitions and new market
development. However, tougher trading conditions, Covid-19
disruption and the previously announced deferral of revenue and
profit for a defence contract into FY21 resulted in a reduction in
Group revenue for the year to approximately GBP25 million (2019:
GBP28.3 million) and overall the Group is expected to deliver an
adjusted(1) operating loss for the year (2019: GBP2.2 million
profit).
CHESTERFIELD SPECIAL CYLINDERS
The Chesterfield Special Cylinders ("CSC") division delivered
revenue of approximately GBP11 million (2019: GBP13.9 million) and
is expected to break even at the adjusted operating profit level.
The phasing of major defence contracts resulted in significantly
lower revenue in the year, driving lower overall gross margin
performance, which was further compounded by the previously
announced deferral of revenue on a defence contract from Q4 FY20
into Q1 FY21.
The diversification of end markets in CSC continues to reduce
the historical dependence on the oil and gas sector and over the
year, CSC secured major contracts with established UK and export
defence customers and won a second major contract to supply
nitrogen storage solutions for UK nuclear power customer EDF
Energy, as previously announced. Good progress also continues to be
made in the rapidly developing hydrogen energy market. Three
contracts for transport refuelling high-pressure storage were
successfully completed over the past two years for customers
including ITM Power and Haskel, with three further projects
currently in production.
As expected, following a strong start to the year, CSC's
Integrity Management services were heavily impacted by Covid-19
travel restrictions from March 2020 onwards, causing disruption to
ongoing overseas projects and the deferral of several UK
deployments. Despite these challenges, strong growth was delivered
for the fifth consecutive year, driven by in-situ inspection and
recertification projects for the UK submarine and surface vessel
fleets.
PRECISION MACHINED COMPONENTS
Despite very challenging trading conditions in the oil and gas
market during the second half of the year, the Precision Machined
Components ("PMC") division delivered full-year revenue of
approximately GBP14 million (2019: GBP14.4 million), but is
expected to make an operating loss, driven by lower than expected
gross margins, as poor operational performance in the first half of
the year failed to improve in the second half.
A depressed oil price has resulted in continued disruption and
uncertainty for our oil and gas OEM customers and the deferral of
project spend. Consequently, order intake in the second half fell
sharply and the divisional order book at the start of FY21 was less
than half the pre-pandemic value six months earlier. Significantly
higher indirect costs and depreciation following two years of
growth investment were not fully offset by the proactive steps
taken early in the second half of the year to limit the impact of
trading conditions on the division. These actions included closure
of the persistently loss-making Quadscot operation, management
restructuring and the implementation of other cost saving and cash
preservation measures, whilst seeking to protect core capability.
Whilst the consolidation of the Quadscot operation and order book
into our Roota facility through the peak of Covid-19 disruption
took longer than expected and adversely impacted divisional margins
and customer delivery schedules, this transition has now resulted
in a lower cost base and increased utilisation of capacity across
the remaining sites.
Further progress was made during the year with diversifying the
customer base and extending our range of precision machined
components for specialised oil and gas applications. This includes
long-term strategic supply agreements being signed or under
negotiation with key OEM customers, demonstrating their confidence
in PMC's products and service levels as they seek to consolidate
their approved supplier lists. The investment in new production
management systems and the use of data to drive production
scheduling and customer reporting is starting to deliver
improvements, most notably to on-time delivery performance with key
customers. The investment in production engineering capability and
new advanced machining centres have also helped deliver significant
time and cost savings in the production of familiar and new
component designs, which will contribute to improved margins and
competitiveness through shorter lead times.
The current trading performance and medium-term outlook of our
OEM customers regarding the depressed oil and gas market has driven
an impairment review of the goodwill and other intangible assets of
the PMC division as they relate to Al-Met, Quadscot, Roota and
Martract subsidiaries, acquired by the Group between 2010 and 2016.
Lower than previously considered growth rates and higher
risk-factored discount rates applied to future cash flows have
resulted in a non-cash exceptional impairment to goodwill and other
intangible assets of approximately GBP14 million, which will be
reflected in the FY20 Group results.
BANKING AND NET DEBT
We remain in constructive and supportive dialogue with Lloyds
Bank regarding the amendment and extension of the Group's Revolving
Credit Facility (RCF).
On 3 October 2020, total net borrowings (excluding right of use
assets) reduced to GBP6.4 million (28 September 2019: GBP11.4
million). The Group's GBP12.0 million RCF was drawn at GBP6.8
million (28 September 2019: GBP10.8 million). Cash and cash
equivalents increased to GBP3.4 million (28 September 2019: GBP2.2
million) taking net RCF debt down to GBP3.4 million (28 September
2019: GBP8.6 million). Finance leases on 3 October 2020 increased
slightly to GBP3.0 million (28 September 2019: GBP2.8 million). The
right of use asset debt recognised in the year under IFRS 16 as
leases totalled GBP1.1 million at the year end.
The significant reduction in total net borrowings was driven
principally by the receipt in February 2020 of a GBP2.1 million
prepayment of the Greenlane Renewables Inc. Promissory Note with
associated interest and the receipt in July 2020 of GBP2.6 million
from the sale of our shareholding in Greenlane Renewables Inc.
Receipt of the outstanding Promissory Note balance of GBP3.1
million is expected in the second half of FY21.
STRATEGY AND OUTLOOK
The Group's strategy remains focused on the diversification,
continued development and organic growth of both divisions.
CSC has a strong order book going into FY21, with high-margin
projects, including the defence contract deferred from FY20,
weighted to the first half of the year. We will continue to drive
the operational improvements that underpin margin growth from
established defence and industrial contracts, while strengthening
our capability and readiness for further growth in Integrity
Management services. Periodic inspection regimes will require
product revalidations as current travel restrictions are lifted and
the Group expects to see continued growth in Integrity Management
services in defence, nuclear power generation and hydrogen energy
sectors, where risk management and asset availability are
paramount.
Hydrogen energy storage remains an area of strategic focus and
significant future growth potential for the Group. The progress
already made in this rapidly developing market is expected to
continue as governments increasingly acknowledge the role of
hydrogen in the overall energy mix, with its contribution to
meeting net zero carbon targets in transportation and in
decarbonising industry. In addition to the transport refuelling
station projects successfully completed or currently in production,
CSC has a strong pipeline of opportunities with new and existing
partners, including the previously announced five-year framework
agreement with Shell Hydrogen for their European refuelling
stations. These opportunities are supported by the ongoing
development of products and services to reduce through-life cost
and risk for the operators of static and mobile hydrogen
storage.
In PMC, our priority remains to stabilise and protect the
consolidated operations, complete operational improvements and
maintain service levels for our growing base of OEM customers, as
we seek to conserve cash and recover profitability. As we
anticipate at least a further year of challenging trading
conditions in a depressed oil and gas market, we continue to
appraise opportunities for our specialist engineering capability in
other sectors.
Chris Walters, Chief Executive of Pressure Technologies
commented:
" Despite challenging trading conditions, we have continued to
make strategic progress through FY20 with increased diversification
of the customer base in both divisions.
Recent major contract wins and the further growth in Integrity
Management services have strengthened the outlook for CSC. I am
also really encouraged by the progress made in the rapidly
developing hydrogen energy sector, where our successful development
of products and services for high-pressure hydrogen storage has
been followed by new projects and a growing pipeline of
opportunities. A focus on decarbonisation by governments worldwide
is establishing hydrogen firmly in the global energy mix and I
expect to see this sector become an increasingly significant part
of the Group's business over the next few years.
Depressed oil and gas markets and slower than expected
turnaround of operational performance have impacted the PMC
division and the outlook remains uncertain. Management actions are
focused on maintaining customer service levels and completing
operational improvements, while preserving cash and protecting the
capabilities built over the past two years.
With further UK-wide lockdown restrictions announced in the last
week, Covid-19 continues to impact our target markets, our
operations and our people. I would like to thank all our employees
for their continued hard work and commitment through these
challenging times."
Note
(1) Adjusted operating loss is stated before exceptional items.
The Board believes exceptional items should be separately
identified on the face of the income statement to assist in
understanding the underlying financial performance achieved by the
Group. For FY20, exceptional items included costs associated with
divisional and Group restructuring, the closure of an operational
facility, profit on sales of assets and investments and impairment
charges related to goodwill, intangible assets and promissory note
receivables.
ENDS
For further information, please contact:
Pressure Technologies plc Tel: 0114 257 3616
Chris Walters, Chief Executive PressureTechnologies@houston.co.uk
N+1 Singer (Nomad and Broker) Tel: 0207 496 3000
Mark Taylor / Carlo Spingardi
Houston (Financial PR and Investor Tel: 0204 529 0549
Relations)
Kate Hoare / Anushka Mathew /
Ben Robinson
The information contained within this announcement is deemed by
the Group to constitute inside information as stipulated under the
Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via a Regulatory Information
Service ("RIS"), this inside information is now considered to be in
the public domain
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, Chesterfield Special Cylinders and
Precision Machined Components.
Chesterfield Special Cylinders (CSC) - www.chesterfieldcylinders.com
-- Chesterfield Special Cylinders, Sheffield, includes CSC
Deutschland GmbH and Chesterfield Special Cylinders Inc.
Precision Machined Components (PMC) - www.pt-pmc.com
-- Precision Machined Components includes the Al-Met, Roota
Engineering, Quadscot Precision Engineers and Martract brands.
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END
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