23 May 2023

Pressure Technologies plc

("Pressure Technologies", "the Company" or "the Group")

2022 Full-Year Results

Pressure Technologies (AIM: PRES), the specialist engineering group, announces its preliminary results for the 52 weeks to 1 October 2022, which are in line with the Group revenue and adjusted operating loss* previously announced by the Company on 21 March 2023.

As announced on 21 March 2023 and on 27 April 2023, the publication of the Company's Annual Report and Accounts for this period ("FY22 Annual Report") was delayed due the additional time required by the Company to correct a historic error related to the accounting treatment of certain long-term customer contracts since FY19, and the additional time required by the Company's auditor to finalise its audit report, which has now been completed.  The audited Annual Report and Accounts has been published on the Company's website and will be posted to shareholders on Wednesday 24 May 2023.

As previously announced, results for the period reflect a £1.2 million increase in operating losses over the £1.4 million adjusted operating loss* notified in the earlier trading update on 15 November 2022, as a net result of correcting the application of IFRS 15 to certain long-term contracts in FY22 and in the prior periods FY19, FY20 and FY21.  As a consequence, there will be a corresponding increase in reported profits of £2.3 million over the remaining lives of the relevant contracts in FY23, FY24 and FY25, while contract profitability over the entire duration of the contracts and the quantum and timing of cash flows remain unchanged.

General Meeting

The Company held its Annual General Meeting ("AGM") on Friday 31 March 2023.  However, as a result of the delay to the publication of the FY22 Annual Report, resolutions relating to the approval of the FY22 Annual Report and to directors' remuneration were withdrawn from the agenda of the AGM, with the intention of those resolutions being the subject of a later General Meeting. 

The General Meeting to consider the previously withdrawn resolutions will take place on Tuesday 13 June 2023 at 09:30 am at the offices of Singer Capital Markets, 1 Bartholomew Lane, London EC2N 1AX.

Notice of FY23 Interim Results

The Company will publish its unaudited interim results for the half year ended 1 April 2023 by the end of June 2023.

END

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COMPANY DESCRIPTION

www.pressuretechnologies.com

With its head office in Sheffield, Pressure Technologies 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 and hydrogen energy markets.

The Company 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.

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

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

Chair's statement

FY22 was a challenging period for the Group, as results were impacted by a combination of defence contract delays, operational and supply chain disruption and slower than expected recovery in the oil and gas market. The Group incurred increased operating losses for the full year, as performance in the second half fell significantly below the level anticipated. I am pleased to say that market conditions have improved considerably in FY23, and we have made significant operational improvements to ensure that the Group benefits from strong orderbooks in both divisions.

I apologise for the delay in issuing these FY22 results. Late in the auditor's review of the financial statements, it was determined that the accounting methodology adopted in Chesterfield Special Cylinders since FY19 for large, multi-year naval contracts with a specific customer was incorrect in respect of the timing of cost and profit recognition. The correction of this error impacted the previously reported results for FY21, which have been restated, and also reduced operating profit for FY22 below our previous expectations, albeit with a corresponding increase in the expected profit contributions from these contracts in FY23 and FY24. These corrections and restatements impact the timing of profit recognition over the life of the contract, but do not change overall contract profitability, nor do they affect the value or timing of future cash flows. 

On 6 February 2023, we announced the award of a £18.2 million major defence contract, underpinning the defence orderbook and outlook for Chesterfield Special Cylinders in FY23 and FY24. We are also encouraged by diversification opportunities for pressure system inspection and testing services, including Integrity Management field deployments and cylinder reconditioning and recertification services. These activities cover established defence and offshore markets, while new opportunities are developing for industrial gas and hydrogen storage applications.

We are very well positioned in the emerging market for hydrogen storage and transportation. However, order placement by established and new customers was slower than expected during FY22 and the first half of FY23, influenced by constraints and delays in the supply chain for components required in the generation and compression of hydrogen for refuelling and decarbonisation projects. Despite these delays, we are confident of securing several contracts in the second half of 2023 and remain positive about the prospects for Chesterfield Special Cylinders in the hydrogen energy market for new build storage and transport solutions, and for the through-life inspection, testing and recertification of hydrogen systems over the medium and longer term.

Since 2020, our Precision Machined Components division has felt the significant impact of the Covid-19 pandemic and the downturn in oil and gas markets and the division was loss making in FY22. We are pleased and encouraged by the steady recovery in order intake and order book development for the division, which has traded in line with expectations throughout the first half of FY23 and returned to profitability at the end of the second quarter, as we realised the benefits of increased volumes and the operational improvements made over the past few years. OEM customers continue to forecast strong recovery in demand for specialised components for oil and gas exploration and production projects over the next three to five years.  On 27 March 2023, we announced a record £3.0 million order from an established international OEM customer for the supply of flow control components and subassemblies.  Order intake has continued to grow in line with customer sentiment and project activity, further strengthening the divisional order book for FY23 and well into the first half of FY24.

Improved trading and a stronger market outlook have presented the Group with the potential opportunity to divest Precision Machined Components activities in order to raise funds and support strategic priorities within Chesterfield Special Cylinders. This opportunity is being actively pursued and all options under consideration will seek to deliver optimum shareholder value.

On 6 December 2022 we completed a £2.1 million equity fundraise with support from institutional and retail shareholders. The funds raised have provided important flexibility and liquidity during the first half of FY23 as a bridge to stronger cash generation from major contracts in Chesterfield Special Cylinders and the return to profitability in Precision Machined Components. Ernst & Young LLP continues to support the Group with the review of funding options to replace the Lloyds Bank facility with new arrangements that provide increased liquidity, greater flexibility and the required working capital to support the Group's strategic plans. We expect to complete the refinancing project in the second calendar quarter of 2023.

In April 2022 we were pleased to welcome Chris Webster to the Group as Chief Operating Officer. Chris has brought considerable operational experience to the business through his thirty-year career in manufacturing and has already made a positive impact across all sites, improving production efficiencies, supply chain controls and project management that all support improved forecasting and underpin our growth plans.

On 17 January 2023, we announced the appointment of Steve Hammell as Chief Financial Officer. Steve joined the business on 2 May 2023 and will join the Board from 23 May 2023, immediately after publication of the FY22 accounts.  Steve takes over from James Locking who left the Board on 3 March 2023. We would like to thank James for his contribution and service to the business over the past four years and wish him every success for the future.  Further to our announcement made on 21 March 2023, I am pleased to confirm that Richard Staveley will also join the Board from 23 May 2023.

With strong a strong order book, a strengthened executive team and clear strategic focus for the Group, we are excited about opportunities in the medium to long term and remain confident in meeting full-year market expectations for FY23.

Nick Salmon

Chair

Business and financial review

Overview

Difficult trading conditions throughout the year reflected the challenging global economic climate, supply chain disruptions and cost inflationary pressures on the Group's operations, customers and suppliers, and resulted in an unsatisfactory financial performance. However, good progress has continued against strategic priorities in defence, oil and gas and hydrogen energy markets while operational improvements and strengthened management team underpin confidence in the outlook for the Group.

Overall Group revenue for the year was £24.9 million (2021: £25.3 million) and the adjusted operating loss for the year was £2.6 million (2021: adjusted loss of £1.5 million). The Group made a loss before taxation of £4.0 million (2021: loss of £5.0 million).

Chesterfield Special Cylinders

Chesterfield Special Cylinders (CSC) delivered revenue of £17.6 million (FY21: £18.9 million) and an adjusted operating profit of £0.4m (FY21: £2.0 million). A restatement of the Consolidated statement of comprehensive income for the year ended 2 October 2021 has been undertaken to correct an error which related to the incorrect treatment of certain contract accounting transactions (see Note 2).

Revenue in the first three quarters of the year reflected the expected timing of major defence contract placement and phasing of contract milestones.  However, the fourth quarter was significantly below expectations due to a combination of unexpected customer delays, supply chain disruption and the unplanned outage of key equipment, delaying significant revenue into the first half of FY23. Similarly, several Integrity Management deployments planned for the second half were delayed by customers into FY23 and FY24. Input costs from raw materials and energy-intensive processes increased significantly throughout the year, further impacting margins where the costs could not be recovered through price escalations and permitted contract variations within the period.

The operating profitability for CSC in FY22 was £1.2 million below the value that was notified in the trading update on 15 November 2022 as a result of the correction of an historic incorrect application of IFRS 15, the accounting standard that deals with the accounting treatment of long-term customer contracts.  This is detailed in Note 2 to the financial statements.  

On 6 February 2023, the Group announced the major contract placement by a major UK naval customer for pressure vessel manufacturing for a new construction project.  Worth £18.2 million, this contract is the largest ever awarded to CSC.  Progress has commenced against early contract milestones and pressure vessels will be delivered to the customer over the next three years.  

Major contracts with naval customers, both in the UK and in France, underpinned a strong order book of £22.2 million at the end of January 2023 and will contribute to significant revenue and margin recovery in FY23.  The opportunities pipeline provides good visibility of future UK and overseas navy new construction and refit programmes.

Demand for Integrity Management field services increased steadily through the first half of the year and was anticipated to grow further throughout the second half.  However, the postponement of several naval vessel deployments from the second half into FY23 and FY24 resulted in full-year revenue of £1.8 million (2021: £1.5 million).  

Growth opportunities for Integrity Management services remain strong in key markets of defence, offshore services, nuclear and industrial ground storage.  Enquiry levels from offshore services customers increased sharply at the end of the first quarter of FY23, driven by growing activity in the market to support offshore oil and gas projects.

Revenue from hydrogen projects in the year was £2.4 million (2021: £2.2 million), reflecting a pause in order placement by customers during the year due to supply chain issues that affected lead times for manufactured components and the uncertainty due to cost inflation.  

Whilst increasing lead times for electrolysers and hydrogen compression systems are affecting refuelling and decarbonisation project schedules, the opportunities pipeline continues to develop for hydrogen ground storage and road trailers in the UK and Europe.  The growing road trailer opportunity reflects the increasing demand for the flexible and cost-effective transportation of hydrogen, in which CSC is well placed to deliver solutions for established operators and new entrants.  

Throughout the year, CSC continued to raise the profile of its hydrogen capabilities, products and services during events and exhibitions held in France, Spain, Germany and the UK.  Based on market evaluation and evolving customer requirements, we are developing solutions for higher storage pressures and efficient road trailer designs, while in-situ testing and factory reconditioning of hydrogen storage and transportation systems present additional exciting growth opportunities for CSC. Operational improvements in the Sheffield facility have delivered increased capacity and efficiency for hydrogen road trailer assembly, reconditioning, inspection and testing services and we remain focused on delivering improved revenue and contract margins from these growth areas.

Precision Machined Components

Precision Machined Components (PMC) delivered revenue of £7.3 million (2021: £6.4 million) and an adjusted operating loss of £1.1 million (2021: £1.6 million loss). 

As expected, and reflecting an increased oil price, the PMC order book built during the year and by the end of September 2022 had reached its highest level since May 2020.  However, an unexpected temporary slowdown in order placement over the summer period, together with supply chain delays and cost increases, resulted in lower revenue and a significantly greater adjusted operating loss than anticipated for the full year.  

Order intake recovered later in the fourth quarter of FY22 and further strengthened during the first half of FY23.  Divisional order intake of £4.3 million in March 2023, the division's highest ever monthly order intake, and £1.1 million in April 2023, underpinned a closing order book of £7.6 million at the end of April 2023, the highest ever order book level for the division (April 2022: £2.2 million).  As expected, the division returned to profitable trading in the second quarter of FY23.

At Roota Engineering, the demand for subsea well intervention tools, valve assemblies and control module components is expected to grow further as major OEM customers including Aker, Expro, Halliburton and Schlumberger, plus several new specialist customers, continue to report a stronger oil and gas market outlook for 2023 and are investing heavily in their global manufacturing capacity to support growth in oil and gas production, principally from South America, West Africa, US Gulf of Mexico, Middle East and North Sea regions. The recovery of revenue and profitability has been supported by successful recruitment, skills development and specialist engineering software, increasing the capacity to meet the growing demand and extended product range for a broader customer base.

At Al-Met, a slower than expected recovery in demand for production drilling and flow control components and a higher cost base driven by the necessary protection of core capabilities and retention of the skilled workforce resulted in a loss for the year. However, OEM customers, Schlumberger and Baker Hughes are forecasting a strong and sustained recovery in demand for subsea trees and flow control components throughout 2023 and beyond. Order intake levels for these components increased steadily through the first half of FY23, with Baker Hughes placing their first significant orders for precision choke components since June 2020, as major subsea and surface production engineering contracts restart.

Al-Met has remained focused on the improvement of operational performance, efficiency, and competitiveness in readiness for the recovering order book and is well positioned amongst very few European competitors. On 27 March 2023, the Group announced that Al-Met had been awarded a record £3.0 million order from an established international OEM customer for the supply of flow control components and subassemblies used in high-pressure extreme service oil and gas applications. 

This unprecedented order for Al-Met and the continuing momentum in PMC order intake underpin the FY23 full-year outlook for the division and also provide substantial order book coverage and visibility for the first half of FY24. 

On 15 November 2022, the Group announced that an improved trading environment and outlook created the potential opportunity to divest PMC activities in order to raise funds to progress strategic priorities, particularly within Chesterfield Special Cylinders.  The project is underway and is progressing as planned with support from advisors, KPMG LLP.  All options under consideration will seek to deliver optimum shareholder value.

Financial review

Prior year restatement

The comparative period financial statements for 2021 have been restated to correct an incorrect application of IFRS 15, 'Revenue from Contracts with Customers'.  The restatement impacts the timing, but not the overall quantum, of profits from multi-year contracts and has no cashflow impacts (either quantum or timing).  An explanation of the restatement and tables showing the impact on the comparative period financial statements is included in Note 2 to the financial statements. 

Financing and cash flow

Operating cash outflow before movements in working capital was £2.2 million (2021: £1.0 million outflow, restated). After a net working capital inflow of £3.0 million (2021: £5.1 million outflow, restated), cash generated from operations was £0.8 million (2021: £6.1 million used by operations). Key movements within working capital include an inflow of £0.9 million of deferred PAYE and VAT due to HMRC, in order to preserve cash flow in the final quarter of the year.

Cash outflows in the year in respect of exceptional administration costs (see Note 6) were £0.8 million (2021: £0.6 million).

Cash inflow from investing activities includes proceeds of £1.6 million from the sale and leaseback of the Roota site in July 2022.

Central costs

Unallocated central costs (before exceptional administration costs) were £2.0 million (2021: £1.9 million). In respect of the Group's various share option plans there was a net cost in the year of £0.1 million (2021: £0.1 million).

Asset impairments and amortisation

The Group tests annually for impairment, or more frequently if there are indicators that intangible and tangible fixed assets might be impaired. The difficult general economic environment and the recent uncertainties in the oil and gas market, PMC's key end market, are considered to be an indicator that the carrying value of our intangible and tangible assets in PMC and CSC, the Group's cash generating units (CGU), may be impaired. 

The Group has considered a range of economic conditions for the divisions over the next three years.  These economic conditions, together with reasonable and supportable trading assumptions, have been used to estimate the future cash inflows and outflows for both divisional CGUs over the next three years.  The assumptions underlying these forecasts are detailed in these financial statements.

The review concluded that no impairment was required in these financial statements. Amortisation costs were £0.1 million (2021: £0.2 million).

The Group holds freehold land and buildings, including CSC's main facility at Meadowhall Road, Sheffield.  As part of discussions with the Group's bankers during the year, the Directors obtained two valuations from two independent chartered surveyors of this this freehold land and buildings, which indicated that no impairment of this asset was required.

Exceptional administration costs

Exceptional administration costs of £1.0 million principally included costs associated with the refinancing of the Group's banking facilities of £0.3 million, the final costs of £0.2 million related to ongoing software licencing for the cancelled ERP system impaired in the prior financial year, and other legal and associated costs relating to the surrender of property leases with non-utilised sites under tenancy arrangements of £0.3 million.  There were other costs of £0.2 million for several other matters that included a historical settlement dispute and an obsolete stock write off, both in the CSC division.

Taxation

The tax charge for the year was £0.1 million (2021: tax credit £0.8 million). The current year tax charge was impacted by a £0.6 million under provision in respect of the prior year (2021: over provision £0.1 million).

Corporation tax refunded in the year totalled £0.1 million (2021: £nil). Taxes relating to overseas territories are minimal.

Foreign exchange

The Group now has no material exposure to movements in foreign exchange rates related to both transactional trading and translation of overseas assets and liabilities.

In the year under review, the principal exposure which arose from trading activities was to movements in the value of the Euro and the US Dollar relative to Sterling. As the Group companies both buy and sell in overseas currencies, particularly the Euro and the US Dollar, there is a degree of natural hedging already in place. Where appropriate, and where the timing of future cash flows are able to be reliably estimated, forward contracts can be taken out to cover exposure. 

Loss per share and dividends

Basic loss per share was 13.0 pence (2021: 14.8 pence). Adjusted loss per share was 10.2 pence (2021: 4.9 pence).

No dividends were paid in the year (2021: nil) and no dividends have been declared in respect of the year ended 1 October 2022 (2021: nil). Distributable reserves in the parent company totalled £6.3 million at year end (2021: £8.6 million).

Statement of financial position

Intangible assets (at net book value) decreased by £0.1 million to £nil (2021: £0.1 million). Amortisation in the year was £0.1 million (2021: £0.2 million).

Net current assets (being current assets less current liabilities) decreased to £3.0 million (2021: £5.2 million, restated). Non-current liabilities of £2.8 million (2021: £3.6 million) have decreased by £0.8 million, as a result of the reduction in lease liabilities, deferred taxation liabilities and other payables.

Net assets decreased by 24% to £12.1 million (2021: £16.0 million, restated) and net asset value per share decreased to 39 pence (2021: 56 pence).

Bank facility, borrowings and liquidity

Net debt at 1 October 2022 was £3.5 million (2021: £5.0 million).  The decrease was driven primarily by cash proceeds of £1.6 million from the sale and leaseback of the Roota Engineering site in July 2022. This enabled the repayment of £2.4 million of the Group's drawings under the revolving credit facility (RCF) reducing drawn debt to £2.4 million at the year end (2021: £4.8 million).

In October 2022, the Group's RCF was amended and its facility term was extended from September 2023 to March 2024, with the facility reducing from £2.4 million to £1.9 million in March 2023 and then £0.9 million in September 2023. Leverage (net debt to adjusted EBITDA) and interest cover covenants, tested quarterly, recommenced on the first testing date of 30 September 2022 through to the end of the facility.  The September 2022 test period was waived. The December 2022 test period was deferred until January 2023 and subsequently waived.  The financial covenant tests for March and June 2023 were amended to reflect the impact of the IFRS 15 contract accounting restatement noted above. 

Ernst & Young LLP continues to support the Group with the review of funding options to replace the Lloyds Bank facility with new arrangements that provide increased liquidity, greater flexibility and the required working capital to support the Group's strategic plans. We expect to complete the refinancing project in the second calendar quarter of 2023.

On 15 November 2022, the Group announced the results of a Placing and Retail Offer. The £2.1 million net proceeds are supporting short term working capital requirements, whilst longer term financing options are progressed.

Going concern

The Group currently has a very strong order book reflecting both the recent award of a major £18.2 million, multi-year contract for a major UK naval new construction programme, and the recent significantly improved trading in the Precision Machined Components division resulting in an order book of £7.6 million at the end of April 2023, the highest ever order book level for the division. Forecasts have been prepared covering the sixteen month going concern period and these demonstrate that the Group can operate within its existing financial facilities and has sufficient headroom in its financial covenants. While the level of cash reserves is relatively low for the period to the end of July 2023, the level is forecast to improve substantially for the remainder of the forecast period.  However, the  possibility of delays to the performance on the large naval contract in CSC, particularly if combined with other trading downsides, and the relative lack of headroom and flexibility in the Group's fully drawn facility with Lloyds Bank for which a replacement financing is not yet in place, gives rise to material uncertainties, as defined in the accounting standard, relating to events and circumstances which may cast significant doubt over the Group's ability to continue as a going concern.

However, taking into account the very low likelihood of material delays in the large naval contract, the ability of the Group to mitigate, partially or fully, the impact of any such delays, the Board's expectation that it will obtain alternative financing to replace the Lloyds Bank facility in the second calendar quarter of 2023, and the ongoing work to explore longer term opportunities to strengthen the Group's balance sheet and cash position, the Directors consider that the Group has sufficient financial headroom to be able to continue its operations for the foreseeable future. Therefore, these financial statements have been prepared on a going concern basis.

Outlook

Despite the disappointing results in FY22, the Board is confident in underlying market opportunities and trading conditions and expects a return to profitability and cash generation in FY23.

The strong defence order book for UK and overseas naval contracts underpins confidence in FY23 and FY24 performance for CSC.  Despite delays in the hydrogen energy supply chain, opportunities for the supply of new hydrogen storage and road trailers continue to develop in the UK and Europe, while in-situ testing and factory reconditioning of hydrogen storage and transportation systems present exciting growth opportunities for Integrity Management services beyond existing defence, offshore and industrial markets. 

Following a return to profitability for PMC at the end of the second half of FY23, increasing demand from OEM customers and the continuing momentum in order intake underpin the FY23 full-year outlook and provide substantial order book coverage and visibility for the first half of FY24.  As previously announced, this improved trading environment and outlook has created a potential opportunity to divest PMC activities in order to fund strategic priorities, particularly within Chesterfield Special Cylinders.  All options under consideration for PMC will seek to deliver optimum shareholder value.

The Board is confident in meeting FY23 market expectations and excited about the opportunities and prospects for the business in the medium and longer term.

Chris Walters

Chief Executive

Consolidated statement of comprehensive income

For the 52 week period ended 1 October 2022

A restatement of the Consolidated statement of comprehensive income for the year ended 2 October 2021 has been undertaken to correct an error which related to the incorrect treatment of certain contract accounting transactions (see Note 2).

Consolidated statement of financial position

A restatement of the Consolidated statement of financial position as at 2 October 2021 and 3 October 2020 has been undertaken to correct an error which related to the incorrect treatment of certain contract accounting transactions (see Note 2).

Consolidated statement of changes in equity

For the 52 week period ended 1 October 2022

A restatement of the Consolidated statement of changes in equity for the years ended 2 October 2021 and 3 October 2020 has been undertaken to correct an error which related to the incorrect treatment of certain contract accounting transactions (see Note 2).

Consolidated statement of cash flows

For the 52 week period ended 1 October 2022