REG - PressureTechnologies - 2022 Full-Year Results
23/05/2023 07:00
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RNS Number : 2608A Pressure Technologies PLC 23 May 2023
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.
Financial Results
· Revenue of £24.9 million (2021: £25.3 million)
· Adjusted operating loss* of £2.6 million (2021: £1.5 million operating
loss***)
· Adjusted EBITDA loss** of £0.9 million (2021: £0.1 million EBITDA profit**
***)
· Loss before taxation of £4.0 million (2021: £5.0 million loss before
taxation***)
· Basic loss per share of 13.0p (2021: loss per share 14.8p***)
· Net debt**** reduced to £3.5 million (2021: £5.0 million***)
* Operating loss excluding amortisation, impairments
and other exceptional costs.
** EBITDA profit/loss excluding impairments and other
exceptional costs.
*** Comparative period financial results for 2021 have
been restated. See Note 2 to the financial statements.
**** Net debt includes gross borrowings, asset finance leases,
right of use asset leases, less cash and cash equivalents.
Group Highlights
· Difficult trading conditions throughout the FY22 period reflected the
challenging economic climate, supply chain disruptions and cost inflationary
pressures impacting the Group's operations, customers and suppliers.
· Progress has continued against strategic priorities, while operational
improvements and strengthened management underpin confidence in the outlook
for the Group.
Chesterfield Special Cylinders
· Defence revenue increased to £13.5 million (2021: £11.1 million), reflecting
the strong order book and new contract placements for submarine and surface
ship projects for UK and overseas navies.
· Largest ever contract award of £18.2 million announced in February 2023 to
supply safety-critical pressure vessels for major UK naval new construction
project, with three-year manufacturing programme to 2025.
· Hydrogen revenue increased to £2.4 million (2021: £2.2 million), while low
order intake for refuelling station storage reflected the impact of
industry-wide supply chain issues and cost inflation on customer projects.
· Operational improvements in the Sheffield facility are delivering increased
capacity and efficiency for hydrogen cylinder and road trailer new build,
inspection and testing services.
· Integrity Management revenue increased to £1.8 million (2021: £1.5 million),
with strong performance in the first half, largely offset by postponed naval
deployments in the second half.
· Enquiry levels for Integrity Management services from offshore services
customers increased sharply during the first half of FY23, driven by growing
activity in the oil and gas market.
Precision Machined Components
· Revenue increased to £7.3 million (2021: £6.4 million), reflecting the
recovery of order intake later than expected in the fourth quarter of FY22.
· Order intake strengthened significantly during the first half of FY23, with
order intake of £4.3 million in March 2023, the division's highest ever
monthly order intake.
· Divisional order book of £7.6 million at the end of April 2023 is the highest
order book level on record (April 2022: £2.2 million).
Strategic Progress
· Revolving credit facility with Lloyds Bank plc amended in October 2022 and
facility term extended to March 2024.
· Review of funding options to replace the Lloyds Bank facility with new, more
flexible arrangements continues. Refinancing expected to complete by the end
of June 2023.
· Net proceeds of £2.1 million from Placing and Retail Offer in December 2022
to provide short-term working capital, whilst longer term financing options
are being progressed.
· Chris Webster, Chief Operating Officer, joined the business in April 2022,
providing strong leadership and delivering operational and performance
improvements across all sites.
· Steve Hammell, Chief Financial Officer, joined the business on 2 May 2023,
bringing considerable financial knowledge and experience from several senior
leadership roles.
· Richard Staveley, a representative of Harwood Capital LLP joins the Board as
Non-Executive Director on 23 May 2023, bringing considerable investment
knowledge and experience.
Outlook
· Strong defence order book and pipeline for high-value naval contracts underpin
confidence in FY23 performance for Chesterfield Special Cylinders.
· Opportunities for the supply of new hydrogen storage and demand for hydrogen
transportation systems continue to develop, despite delays in the hydrogen
energy supply chain.
· Increasing demand for in-situ and factory-based inspection, testing and
recertification services for hydrogen static storage and road trailers present
exciting growth opportunities.
· Continuing strength of order intake and recovery to modest EBITDA profit for
the first half of FY23 underpin the full-year outlook for Precision Machine
Components, as order book visibility improves for the first half of FY24.
· Robust order book, strengthened executive team and clear strategic focus
underpin medium to long-term opportunities and the Board's confidence in
meeting market expectations for FY23.
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
For further information, please contact:
Pressure Technologies plc Tel: 0330 015 0710
Chris Walters, Chief Executive PressureTechnologies@houston.co.uk
Singer Capital Markets (Nomad and Broker) Tel: 0207 496 3000
Rick Thompson/Asha Chotai
Houston (Financial PR and Investor Relations) Tel: 0204 529 0549
Kay Larsen / Ben Robinson
COMPANY DESCRIPTION
www.pressuretechnologies.com (https://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
(https://www.chesterfieldcylinders.com/)
· Chesterfield Special Cylinders, Sheffield, includes CSC
Deutschland GmbH.
Precision Machined Components (PMC) - www.pt-pmc.com (https://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).
£ million 2022 Restated 2020 2019 2018
2021
Group revenue 24.9 25.3 25.4 28.3 21.1
Oil & Gas 7.9 6.1 14.9 16.3 12.4
Defence 13.5 11.1 5.1 9.1 6.4
Industrial 1.1 5.9 5.2 2.2 2.3
Hydrogen Energy 2.4 2.2 0.2 0.7 -
Group operating (loss)/profit before amortisation, impairments and exceptional (2.6) (1.5) (2.4) 2.2 1.0
administration charges
Group loss before taxation (4.0) (5.0) (20.0) (0.5) (1.7)
Chesterfield Special Cylinders
£ million 2022 Restated 2020 2019 2018
2021
Revenue 17.6 18.9 11.2 13.9 9.9
Oil and Gas 1.0 0.3 1.0 2.2 1.4
Defence 13.5 11.1 5.1 9.1 6.4
Industrial 0.7 5.3 4.9 1.9 2.1
Hydrogen Energy 2.4 2.2 0.2 0.7 -
Gross margin 29% 30% 26% 36% 35%
Operating profit/(loss) before amortisation, impairments and exceptional 0.4 2.0 (0.1) 2.1 1.1
administration charges
Profit/(loss) before taxation (0.1) 0.8 (1.0) 2.1 1.0
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
£ million 2022 2021 2020 2019 2018
Revenue 7.3 6.4 14.2 14.4 11.2
Oil and gas 6.9 5.7 13.9 14.0 11.0
Industrial 0.4 0.7 0.3 0.4 0.2
Gross margin 18% 11% 17% 29% 33%
Operating (loss)/profit before amortisation, impairments and other exceptional (1.1) (1.6) (0.7) 1.9 1.5
charges
Loss before taxation (1.3) (2.3) (4.3) (0.3) (0.3)
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
Restated
Notes 52 weeks ended 52 weeks ended
1 October 2 October
2022 2021
£'000 £'000
Revenue 1 24,939 25,284
Cost of sales (19,680) (19,347)
Gross profit 5,259 5,937
Administration expenses (7,883) (7,460)
Operating loss before amortisation, impairment and exceptional administration (2,624) (1,523)
costs
Separately disclosed items of administration expenses:
Amortisation 5 (101) (224)
Impairment 5 - (1,773)
Exceptional administration costs 6 (968) (1,044)
(9,848) (10,501)
Total administration expenses
(3,693) (4,564)
Operating loss
Finance costs 3 (292) (412)
Loss before taxation 4 (3,985) (4,976)
Taxation 7 (52) 772
Loss for the period attributable to the owners of the parent (4,037) (4,204)
Other comprehensive (expense)/income to be reclassified to profit or loss in (5) 33
subsequent periods:
Currency exchange differences on translation of foreign operations
Total other comprehensive (expense)/income (5) 33
Total comprehensive expense for
the period attributable to the owners of the parent (4,042) (4,171)
Basic loss per share
From loss for the period 8 (13.0)p (14.8)p
Diluted loss per share
From loss for the period 8 (13.0)p (14.7)p
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
As at 1 October 2022
Restated Restated
Notes 1 October 2 October 3 October
2022 2021 2020
£'000 £'000 £'000
Non-current assets
Intangible assets - 101 325
Property, plant and equipment 11,197 13,100 14,910
Deferred tax asset 663 1,138 464
11,860 14,339 15,699
Current assets
Inventories 4,566 3,708 4,976
Trade and other receivables 9,331 9,061 7,067
Cash and cash equivalents 1,783 3,217 3,416
Asset held for sale - 195 580
Other financial assets - - 3,074
Current tax 58 414 -
15,738 16,595 19,113
Total assets 27,598 30,934 34,812
Current liabilities
Trade and other payables (9,477) (5,474) (9,659)
Borrowings - revolving credit facility 9 (2,407) (4,773) -
Lease liabilities 10 (839) (1,110) (1,209)
(12,723) (11,357) (10,868)
Non-current liabilities
Other payables (32) (241) (538)
Borrowings - revolving credit facility 9 - - (6,773)
Lease liabilities 10 (2,037) (2,245) (2,843)
Deferred tax liabilities (703) (1,068) (752)
(2,772) (3,554) (10,906)
Total liabilities (15,495) (14,911) (21,774)
Net assets 12,103 16,023 13,038
Equity
Share capital 1,553 1,553 930
Share premium account - - 26,172
Translation reserve (265) (260) (293)
Retained earnings 10,815 14,730 (13,771)
Total equity 12,103 16,023 13,038
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
Share Share Translation reserve Retained earnings Total
capital premium equity
Notes account
£'000 £'000 £'000 £'000 £'000
Balance at 3 October 2020 930 26,172 (293) (13,495) 13,314
Prior period adjustment 2 - - - (276) (276)
Restated balance at 3 October 2020 930 26,172 (293) (13,771) 13,038
Share issued 623 6,401 - - 7,024
Share based payments - - - 132 132
Capital reduction transfer - (32,573) - 32,573 -
Transactions with owners 623 (26,172) - 32,705 7,156
- - - (3,426) (3,426)
Loss for the period
Prior period adjustment 2 - - - (778) (778)
Other comprehensive income: - - 33 - 33
Exchange differences on translating foreign operations
Total comprehensive income/ (expense) - - 33 (4,204) (4,171)
Restated balance at 2 October 2021 1,553 - (260) 14,730 16,023
Share based payments - - - 122 122
Transactions with owners - - - 122 122
- - - (4,037) (4,037)
Loss for the period
Other comprehensive expense: - - (5) - (5)
Exchange differences on translating foreign operations
Total comprehensive expense - - (5) (4,037) (4,042)
Balance at 1 October 2022 1,553 - (265) 10,815 12,103
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
Notes 52 weeks ended 52 weeks ended
1 October 2 October
2022 2021
£'000 £'000
Operating activities
Cash flows from operating activities 11 819 (6,166)
Finance costs paid (292) (412)
Income tax refunded 138 -
Net cash inflow/(outflow) from operating activities 665 (6,578)
Investing activities
Proceeds from sale of fixed assets 2,063 477
Proceeds from repayment of promissory note - 3,074
Purchase of property, plant and equipment (536) (1,325)
Net cash inflow from investing activities 1,527 2,226
Financing activities
Repayment of borrowings (2,366) (2,000)
Repayment of lease liabilities (1,260) (1,805)
Shares issued net of transaction costs - 7,024
Proceeds from asset financing - 934
Net cash (outflow)/inflow from financing activities (3,626) 4,153
Net decrease in cash and cash equivalents (1,434) (199)
Cash and cash equivalents at beginning of period 3,217 3,416
Cash and cash equivalents at end of period 1,783 3,217
Notes
Basis of preparation
The consolidated financial statements have been prepared in accordance with
UK-adopted International Accounting Standards, in conformity with the
requirements of the Companies Act 2006. The Company has elected to prepare its
parent company financial statements in accordance with Financial Reporting
Standard 101 (FRS 101). The financial statements are made up to the Saturday
nearest to the period end for each financial period.
Pressure Technologies plc, company number 06135104, is incorporated and
domiciled in the United Kingdom. The registered office address is Pressure
Technologies Building, Meadowhall Road, Sheffield, South Yorkshire, S9 1BT.
The Group has applied all accounting standards and interpretations issued
relevant to its operations for the period ended 1 October 2022. The
consolidated financial statements have been prepared on a going concern basis.
The summary accounts set out above do not constitute statutory accounts as
defined by Section 434 of the UK Companies Act 2006. The summarised
consolidated statement of comprehensive income, the summarised consolidated
balance sheet at 1 October 2022, the summarised consolidated statement of
comprehensive income, the summarised consolidated statement of changes in
equity and the summarised consolidated statement of cash flows for the period
then ended have been extracted from the Group's 2022 statutory financial
statements upon which the auditor's opinion is unqualified, includes an
emphasis of matter in respect of going concern, and did not contain a
statement under either sections 498(2) or 498(3) of the Companies Act 2006.
The audit report for the period ended 2 October 2021 did not contain
statements under sections 498(2) or 498(3) of the Companies Act 2006. The
statutory financial statements for the period ended 2 October 2021 have been
delivered to the Registrar of Companies. The 1 October 2022 accounts were
approved by the directors on 22 May 2023, but have not yet been delivered to
the Registrar of Companies.
Going concern
The financial statements have been prepared on a going concern basis. The
Group and Company's business activities, together with the factors likely to
affect its future development, performance and position, are set out in the
Group Strategic Report. The Financial Reporting Council issued its "Annual
Review of Corporate Reporting 2020/21" in October 2021. The Directors have
considered this when preparing these financial statements.
On 21 October 2022, the Group's Revolving Credit Facility (RCF) with Lloyds
Bank was amended and its facility term was extended from 30 June 2023 to 31
March 2024, with the facility reducing from £2.4 million to £1.9 million on
31 March 2023 and then to £0.9 million on 30 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 next testing date is 30 June 2023. Final repayment of
this facility is required on 31 March 2024.
Management have produced forecasts for the period up to September 2024 for all
business units, taking account of reasonably plausible changes in trading
performance and market conditions, which have been reviewed by the Directors.
In particular, the forecasts reflect both (i) the award of a major, multi-year
contract for the Chesterfield Special Cylinders division to supply air
pressure vessels for a major UK naval new construction program, which was
announced on 6 February 2023, and also (ii) the recent significantly improved
trading in the Precision Machined Components division as oil and gas markets
recover, following unprecedented order intake levels which have resulted in an
order book of £7.6 million at the end of April 2023, the highest ever order
book level for the division. The base case forecast demonstrates that the
Group is projected to:
· generate profits and cash in the current financial year and
beyond:
· has headroom in financial covenants over the period up to the
expiry of the RCF on 31 March 2024, and;
· generates sufficient cash to repay the tranches of the RCF on 30
September 2023 and 31 March 2024 and has sufficient cash reserves beyond 1
April 2024 to manage without the RCF or an alternative financing facility.
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.
The Group has also developed downside scenarios, which include consideration
of the recent track record of not always achieving budgets. The downside
scenario demonstrates the Group's dependence on the performance of large
contracts (for example the large naval contract) noted above due to their
materiality to the Group's overall results. Management have modelled the
downside scenario based on reasonably possible delays in the large naval
contract. By their nature, the achievement of performance milestones under
these types of contract can be subject to uncertainties, and delays have
occurred to similar contracts in the past. These uncertainties include
in-house operational delays and inefficiencies, delays in the supply of
material and components by suppliers, and delays in the performance of work by
subcontractors. The Group often has very limited control of the latter two
factors. The achievement of performance milestones enables the Group to
recognise revenue and profits under the contract and typically initiates
invoicing to, and subsequent cash collection from, the customer.
As a result, these delays, whilst typically not impacting the financial
performance of the contract over its entire duration, can lead to material
delays in the timing of profit recognition and cash receipts between periods.
Given the size of the particular naval contract, any delays and unforeseen
events could have a material impact on the Group's cash reserves and covenant
compliance, particularly in the first three months of the forecast period when
the level of cash reserves is relatively low.
Notes (continued)
In the event of delays in the contract, the Group would look to mitigate the
impact, partially or fully, by pulling forward contracted work from other
customers, and through normal working capital management and other cash
preservation initiatives. It should also be noted that work on this contract
has already commenced and, to date, no material problems or delays have arisen
and the contract is progressing in line with our contractual obligations. The
contract has also largely passed through the phase in which the supply of
materials and components and the use of third-party contractors, over whom the
Group has significantly less control, is at its highest. Nonetheless, this
remains a key risk for the business and management are exploring financing
options to provide the required flexibility in the event of such downside
scenarios.
Given the expiry of the RCF on 31 March 2024 and the step down in its quantum
in September 2023, the Group is currently exploring several actions to
strengthen the Group and the Company's financial position. In particular, the
Group is currently working with an advisor to support the Group's review of
funding options, including asset-backed lenders as well as high street banking
institutions, in order to replace the Lloyds Bank RCF with new arrangements
that will provide the Group with increased facility headroom and flexibility.
These discussions are ongoing and management expect this to complete in the
second calendar quarter of 2023. In addition to pursuing refinancing
opportunities, the Group is also currently exploring other longer-term
opportunities to strengthen the Group's balance sheet and cash position,
including divesting of non-core activities and the refinancing of the Group's
freehold property at Meadowhall Road, Sheffield.
Other factors which could negatively impact the forecasts include:
· Failure to win additional contracts in the Chesterfield Special
Cylinders division for hydrogen energy projects due to market factors outside
the control of the Group
· Weaker revenue from Integrity Management deployments due to
customer delays; and
· The recent improvement in the Precision Machined Components
divisional revenue and order book not continuing going forward due to weaker
than expected oil and gas market conditions.
The Group believes that these factors are individually less likely to be
material to the achievement of the forecasts than potential delays in the
large naval contract, but in the event that they occur together with large
naval contract delays they may have a negative impact on covenant compliance
and cash flow at certain test dates in the forecast period.
The possibility of material delays to the performance of contracts (naval
contract in particular) and a replacement financing facility not yet being in
place gives rise to material uncertainties, as defined in accounting
standards, relating to events and circumstances which may cast significant
doubt about the Group's and Parent Company's ability to continue as a going
concern and to realise its assets and discharge its liabilities in the normal
course of business.
Reflecting management's confidence in delivering large contracts and
successfully replacing their finance facility, the Group and Parent Company
continue to adopt the going concern basis in preparing these financial
statements. Management have concluded that the Group and Parent Company will
be able to continue in operation and meet their liabilities as they fall due
over the period to September 2024. Consequently, these financial statements do
not include any adjustments that would be required if the going concern basis
of preparation were to be inappropriate.
New standards adopted in 2022
No new standards were applied during the year.
Amendments to IFRSs that are mandatorily effective for the current year
At the date of the authorisation of these financial statements, several new,
but not yet effective, standards and amendments to existing standards, and
interpretations have been published by the IASB. None of these standards or
amendments to existing standards have been adopted early by the Group.
Management anticipates that all relevant pronouncements will be adopted for
the first period beginning on or after the effective date of pronouncement.
The impact of new standards, amendments and interpretations not adopted in the
current year have not been disclosed as they are not expected to have a
material impact on the Group's financial statements.
Notes to the consolidated financial statements
1. Segment analysis
The financial information by segment detailed below is frequently reviewed by
the Chief Executive who has been identified as the Chief Operating Decision
Maker (CODM).
For the 52 week period ended 1 October 2022
Precision Machined Components All other segments
Cylinders Total
£'000 £'000 £'000 £'000
Revenue from external customers 17,583 7,356 - 24,939
Gross profit/(loss) 4,521 838 (100) 5,259
Operating profit/(loss) before amortisation and exceptional administration 409 (1,100) (1,933) (2,624)
costs
Amortisation - (161) 60 (101)
Exceptional administration (costs)/income (403) 50 (615) (968)
Operating profit/(loss) 6 (1,211) (2,488) (3,693)
Net finance costs (37) (73) (182) (292)
Profit/(loss) before tax (31) (1,284) (2,670) (3,985)
Segmental net assets/(liabilities) * 7,330 7,708 (2,935) 12,103
Other segment information:
Capital expenditure - property, plant and equipment
559 526 47 1,132
Depreciation 679 790 209 1,678
Amortisation - 101 - 101
* Segmental net assets/(liabilities) comprise the net assets of each division adjusted to reflect the elimination of the cost of investment in subsidiaries and the provision of financing loans provided by Pressure Technologies plc.
Notes to the consolidated financial statements (continued)
1. Segment analysis (continued)
Restated for the 52 week period ended 2 October 2021
Precision Machined Components All other segments
Cylinders Total
£'000 £'000 £'000 £'000
Revenue 18,877 6,407 - 25,284
Gross profit/(loss) 5,324 696 (83) 5,937
Operating profit/(loss) before amortisation, impairment and exceptional 2,056 (1,647) (1,932) (1,523)
administration costs
Amortisation and impairment (916) (56) (1,025) (1,997)
Exceptional administration costs (250) (501) (293) (1,044)
Operating profit/(loss) 890 (2,204) (3,250) (4,564)
Net finance costs (82) (85) (245) (412)
Profit/(loss) before tax 808 (2,289) (3,495) (4,976)
Segmental net assets/(liabilities) * 7,515 9,352 (844) 16,023
Other segment information:
Capital expenditure - property, plant and equipment
795 487 217 1,499
Depreciation 632 818 205 1,655
Amortisation 87 56 81 224
* Segmental net assets/(liabilities) comprise the net assets of each division adjusted to reflect the elimination of the cost of investment in subsidiaries and the provision of financing loans provided by Pressure Technologies plc.
A restatement of the Segmental analysis 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).
Notes to the consolidated financial statements (continued)
1. Segment analysis (continued)
The Group's revenue disaggregated by primary geographical markets is as
follows:
Revenue 2022 2021
Precision Machined Components Precision Machined Components
Cylinders Total Cylinders Total
£'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 12,406 3,720 16,126 15,270 2,950 18,220
France 2,958 68 3,026 1,164 - 1,164
Norway 885 272 1,157 23 306 329
USA 3 1,071 1,074 - 798 798
Romania - 972 972 - 916 916
Italy - 764 764 - 776 776
Taiwan 393 - 393 - - -
Netherlands 359 - 359 164 - 164
Germany 272 - 272 616 - 616
Switzerland - - - 748 - 748
South Korea - - - 294 - 294
Rest of Europe 157 8 165 8 171 179
Rest of World 150 481 631 590 490 1,080
17,583 7,356 24,939 18,877 6,407 25,284
During the year, there were two customers who each contributed to over 10% of
total Group revenue. These revenues were £5.2 million (20.9%) and £3.0
million (12.0%), both within the Cylinders segment (2021: two customers, £6.7
million (26.3%) and £3.8 million (15.0%), both reported in the Cylinders
segment).
The following table provides an analysis of the Group's revenue by market.
Revenue 2022 2021
£'000 £'000
Oil and gas 7,953 6,076
Defence 13,483 11,070
Industrial 1,099 5,949
Hydrogen energy 2,404 2,189
24,939 25,284
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 2022 2021
Precision Machined Components Precision Machined Components
Cylinders Cylinders
£'000 £'000 £'000 £'000
Sale of goods transferred at a point in time 3,336 7,021 1,080 6,006
Sale of goods transferred over time 12,584 - 15,594 -
Rendering of services 1,663 335 2,203 401
17,583 7,356 18,877 6,407
Notes to the consolidated financial statements (continued)
1. Segment analysis (continued)
The following aggregated amounts of transaction values relate to the
performance obligations from existing contracts that are unsatisfied or
partially unsatisfied as at 1 October 2022:
Revenue expected in future periods 2023
£'000
Sale of goods - Cylinders 4,601
The following table provides an analysis of the carrying amount of non-current
assets and additions to property, plant and equipment, all of which is held
within the United Kingdom.
2022 2021
£'000 £'000
Non-current assets 11,197 14,247
Additions to property, plant and equipment 1,132 1,499
2. Restatement in respect of IFRS 15 "Revenue from Contracts with Customers"
During the year, the Group reviewed its accounting policy and past accounting
treatment in respect of a small number of long-term defence contracts within
its Cylinders division.
Since FY19, the Group has consistently applied an accounting treatment whereby
revenue for these specific defence contracts was recognised using an 'Output'
methodology under IFRS 15, 'Revenue from Contracts with Customers' ("IFRS
15"), with costs being accrued to achieve a uniform profit margin throughout
the multi-year life of the contracts, resulting in cost deferrals at financial
period ends. Whilst this cost treatment impacted the timing of profit
recognition between financial periods, it had no impact on either the total
profitability of the contracts over their entire lives, nor the quantum or
timing of cash flows. During the year, it was noted that this accounting
treatment is not in compliance with IFRS 15, which requires that all costs
incurred in the period relating to the contract should be immediately
expensed. This means that cost deferral to achieve a uniform contract profit
margin, as historically adopted by the Group, is not permitted. As a result,
the comparative period financial statements have been restated as detailed in
the tables below. These accounting adjustments only impact the timing of
profit recognition under these specific contracts. They do not impact the
net debt position of the Group at any date, the future cash generation profile
of the Group, nor the underlying trading or operations of the business.
As at, and for the year ended, 2 October 2021, the impact of the restatement
was as follows:
2021 2021 2021
Presented Adjustment Restated
Income statement items:
Cost of sales (18,569) (778) (19,347)
Gross profit 6,715 (778) 5,937
Operating loss (3,786) (778) 4,564
Loss for the period attributable to the owners of the parent (3,426) (778) 4,204
Balance sheet items:
Inventories - Raw materials 3,000 (625) 2,375
Inventories - Work in progress 1,732 (429) 1,303
Total equity (17,077) 1,054 (16,023)
Notes to the consolidated financial statements (continued)
2. Restatement in respect of IFRS 15 "Revenue from Contracts with Customers"
(continued)
As at, and for the year ended, 3 October 2020, the impact of the restatement
was as follows:
2020 2020 2020
Presented Adjustment Restated
Balance sheet items:
Inventories - Raw materials 2,749 (276) 2,473
Total equity (13,314) 276 (13,038)
Effect on FY22:
Had the restatement not been applied, the income statement measures for the
year ended 1 October 2022 set out below would have differed by the following
amounts:
Amount by which income items would have been
changed:
£'000
Cost of sales - higher by 1,054
Gross profit - reduced by 1,054
Operating loss - increased by 1,054
Loss for the period attributable to the owners of the parent - increased by 1,054
3. Finance costs
2022 2021
£'000 £'000
Interest receivable - (40)
Interest payable on bank loans and overdrafts 168 332
Interest payable on lease liabilities 124 120
292 412
4. Loss before taxation
Loss before taxation is stated after charging/(crediting):
2022 2021
£'000 £'000
Depreciation of property, plant and equipment - owned assets 1,114 956
Depreciation of property, plant and equipment - leased assets 564 699
(Profit)/loss on disposal of fixed assets (327) 78
Amortisation of intangible assets 101 224
Amortisation of grants receivable (66) (40)
Staff costs - excluding share based payments 9,234 8,899
Cost of inventories recognised as an expense 12,463 12,821
Share based payments 122 132
Included in the (profit)/loss on disposal of fixed assets in 2022 is a
£401,000 profit relating to the sale and leaseback of the property at Roota
Engineering Limited, part of the Precision Machined Components division.
Notes to the consolidated financial statements (continued)
5. Amortisation and Impairment
2022 2021
£'000 £'000
Amortisation of intangible assets 101 224
Property impairment - 655
ERP system impairment - 1,118
101 1,997
6. Exceptional administration costs
2022 2021
£'000 £'000
Refinancing Group banking facilities 344 175
Property costs 280 206
Final settlement for ERP system costs 193 -
Reorganisation and redundancy - 425
Historical contract settlement 88 -
Impairment of inventory and work in progress 121 240
Reversal of inventory provision from prior year (91) -
Release of bad debt provision - (168)
Closure of Precision Machined Components facility (Quadscot) - 166
New Long-Term Incentive Plan set up costs 33 -
968 1,044
Property costs relate to two closed sites of a formerly owned entity. The leases relating to this former entity have been surrendered and no further costs are expected in FY23.
7. Taxation
2022 2021
£'000 £'000
Current tax charge/(credit)
Current tax expenses 7 -
Over provision in respect of prior years (65) (414)
(58) (414)
Deferred tax charge/(credit)
Origination and reversal of temporary differences (494) (387)
Under provision in respect of prior years 604 29
110 (358)
Total taxation charge/(credit)
52 (772)
Notes to the consolidated financial statements (continued)
Corporation tax is calculated at 19% (2021: 19%) of the estimated assessable
profit for the period. Deferred tax is calculated at the rate applicable when
the temporary differences are expected to unwind.
The charge for the period can be reconciled to the loss per the consolidated
statement of comprehensive income as follows:
Restated
2022 2021
£'000 £'000
Loss before taxation (3,985) (4,976)
Theoretical tax credit at UK corporation tax rate 19% (2021: 19%) (757) (945)
Effect of charges/(credits):
- non-deductible expenses 20 (3)
- non-deductible exceptional items 159 393
- adjustments in respect of prior years 539 (385)
- difference due to correct of error in prior year - 147
- change in taxation rates (34) 16
- differences in deferred tax rates - (17)
- losses not previously recognised now utilised 125 22
Total taxation charge/(credit) 52 (772)
An increase in the UK corporation tax rate to 25% was substantively enacted in May 2021 and is due to take effect from 1 April 2023. As the most significant timing differences are not expected to unwind until 2023 or later, the deferred tax rate was maintained at 25% in the period.
8. Loss per ordinary share
The calculation of the basic earnings per share is based on the earnings
attributable to ordinary shareholders divided by the weighted average number
of shares in issue during the period. The adjusted earnings per share is also
calculated based on the basic weighted average number of shares.
The calculation of diluted earnings per share is based on the basic earnings
per share, adjusted to allow for the issue of shares on the assumed conversion
of all dilutive share options. As the Group made a loss after taxation for the
financial year there is no dilution to take place.
On 6 December 2022 the Group undertook a fundraising through the issue of
7,600,000 new ordinary shares.
For the 52 week period ended 1 October 2022
Total
£'000
Loss after tax (4,037)
No.
Weighted average number of shares - basic 31,067,163
Basic loss per share (13.0)p
Diluted loss per share (13.0)p
Notes to the consolidated financial statements (continued)
8. Loss per ordinary share (continued)
The Group adjusted loss per share is calculated as follows:
Total
£'000
Loss after tax (4,037)
Amortisation (see Note 5) 101
Exceptional administration costs (see Note 6) 968
Theoretical tax effect of the above adjustments (203)
Adjusted loss (3,171)
Adjusted loss per share (10.2)p
In the Directors' view, adjusted loss per share reflects the ongoing
performance of the business, how the business is managed on a day to day
basis, and allows for a consistent and meaningful comparison between periods.
The theoretical tax effect is based on applying a 19% tax rate to the
adjustments for amortisation and other exceptional costs incurred.
Restated for the 52 week period ended 2 October 2021
Total
£'000
Loss after tax (4,204)
No.
Weighted average number of shares - basic 28,463,119
Basic loss per share (14.8)p
Diluted loss per share (14.8)p
The Group adjusted loss per share is calculated as follows:
Loss after tax (4,204)
Amortisation and Impairment (see Note 5) 1,997
Exceptional administration costs (see Note 6) 1,044
Theoretical tax effect of the above adjustments (241)
Adjusted loss (1,404)
Adjusted loss per share (4.9)p
A restatement of the loss per ordinary share Consolidated statement of
comprehensive income for the year ended 2 October 2021 has been undertaken to
correct an error which related to incorrect treatment of certain contract
accounting transactions (see Note 2).
Notes to the consolidated financial statements (continued)
9. Borrowings
2022 2021
£'000 £'000
Current
Revolving credit facility 2,407 4,773
During the period, the bank loans drawn under the Revolving Credit Facility
(RCF) had an average annual interest rate of 2% above SONIA.
On 21 October 2022, the Group's Revolving Credit Facility (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 covenants as at March and June 2023
have been amended to reflect the impact of the IFRS 15 contract accounting
restatement - see Note 2.
The Group's RCF was drawn at £2.4 million at 1 October 2022 (2 October 2021:
£4.8 million). These bank borrowings are secured on the property, plant and
equipment of the Group by way of a debenture. Obligations under finance leases
are secured on the plant and machinery assets to which they relate.
The carrying amount of other bank borrowings is considered to be a reasonable
approximation of fair value. The carrying amounts of the Group's borrowings
are all denominated in GBP.
The maturity profile of borrowing facilities are as follows:
2022 2021
£'000 £'000
Due for settlement within one year:
Revolving credit facility 2,407 4,773
The Group has the following undrawn borrowing facilities at the year end:
2022 2021
£'000 £'000
Expiring within one year - 1,227
Subsequent to year end, as noted above, the RCF was reduced to £2.4 million
and the facility term was extended from September 2023 to March 2024.
Notes to the consolidated financial statements (continued)
10. Lease Liabilities
Lease liabilities are presented in the statement of financial position as
follows:
2022 2021
£'000 £'000
Current
Asset finance lease liabilities 629 810
Right of use asset lease liabilities 210 300
839 1,110
Non-current
Asset finance lease liabilities 735 1,521
Right of use asset lease liabilities 1,302 724
2,037 2,245
The Group has leases for certain operational factory premises and related
facilities, several large items of plant and machinery equipment, an office
building, a number of motor vehicles and some IT equipment. During the period,
the Group completed a sale and leaseback of its freehold property occupied by
Roota Engineering Limited, part of the Precision Machined Components division.
The property lease liability at the end of the period was £837,000.
For right of use assets, with the exception of short-term leases and leases of
low-value underlying assets, each lease is reflected on the balance sheet as a
right-of-use asset and a lease liability.
The Group classifies its right-of-use assets in a consistent manner to its
property, plant and equipment (see Note 14). Each lease generally imposes a
restriction that, unless there is a contractual right for the Group to sublet
the asset to another party, the right-of-use asset can only be used by the
Group. Leases are either non-cancellable or may only be cancelled by incurring
a substantive termination fee. Some leases contain an option to extend the
lease for a further term. The Group is prohibited from selling or pledging the
underlying leased assets as security.
For leases over office buildings and factory premises the Group must keep
those properties in a good state of repair and return the properties in their
original condition at the end of the lease. Further, the Group must insure
items of property, plant and equipment and incur maintenance fees on such
items in accordance with the lease contracts.
The lease liabilities are secured by the related underlying assets. Future
minimum lease payments at 1 October 2022 were as follows:
Within one Over one to
year five years Total
£'000 £'000 £'000
1 October 2022
Lease payments 963 2,512 3,475
Finance costs (124) (475) (599)
Net present value 839 2,037 2,876
Within one Over one to
year five years Total
£'000 £'000 £'000
2 October 2021
Lease payments 1,225 2,419 3,644
Finance costs (115) (174) (289)
Net present value 1,110 2,245 3,355
Notes to the consolidated financial statements (continued)
10. Lease Liabilities (continued)
Lease payments not recognised as a liability
The Group has elected not to recognise a lease liability for short term leases
(leases with an expected term of 12 months or less) or for leases of low value
assets. Payments made under such leases are expensed on a straight-line basis.
11. Consolidated cash flow statement
Restated
2022 2021
£'000 £'000
Loss after tax (4,037) (4,204)
Adjustments for:
Finance costs 292 412
Depreciation of property, plant and equipment 1,678 1,655
Amortisation of intangible assets 101 224
Share option costs 122 132
Release of grants (66) (40)
Income tax charge/(credit) 52 (772)
(Profit)/loss on disposal of property, plant and equipment (327) 78
Impairment - 1,484
Changes in working capital:
(Increase)/decrease in inventories (859) 1,268
Increase in trade and other receivables (269) (1,995)
Increase/(decrease) in trade and other payables 4,132 (4,408)
Cash inflows/(outflows) from operating activities 819 (6,166)
A restatement of the loss after tax for the year ended 2 October 2021 and of
Raw materials and Work in progress as at 2 October 2021 has been undertaken to
correct an error which related to the incorrect treatment of certain contract
accounting transactions (see Note 2). This restatement had no net impact on
the cash outflow for the year ended 2 October 2021.
12. Net Debt Reconciliation
Leases Cash & Bank
Borrowings Total
£'000 £'000 £'000 £'000
Cost
At 3 October 2020 (6,773) (4,052) 3,416 (7,409)
Cash flows - - (199) (199)
Repayments 2,000 1,805 - 3,805
New facilities - asset finance leases - (934) - (934)
New facilities - right of use leases - (174) - (174)
At 2 October 2021 (4,773) (3,355) 3,217 (4,911)
Cash flows - - (1,434) (1,434)
Repayments 2,366 1,260 - 3,626
New facilities - right of use leases - (1,025) - (1,025)
Surrender - right of use leases - 244 - 244
At 1 October 2022 (2,407) (2,876) 1,783 (3,500)
Notes to the consolidated financial statements (continued)
13. Subsequent events
On 21 October 2022, the Group's Revolving Credit Facility (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 covenants as at March and June 2023
have been amended to reflect the impact of the IFRS 15 contract accounting
restatement. See Note 2.
On 15 November 2022, the Group announced that it was exploring longer term
opportunities which included potentially divesting the Precision Machined
Components division, to strengthen the Group's balance sheet and cash position
and support the strategic investment in the Cylinders division.
On 6 December 2022, 7,600,000 new ordinary shares with a nominal value of 5p
each, were issued as part of a fundraising which raised cash proceeds, net of
expenses, of approximately £2.1 million. Of that total, £1.7 million was
allocated to the share premium account.
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.
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