REG - PressureTechnologies - 2023 Full-Year Results
30/01/2024 07:00
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RNS Number : 2827B Pressure Technologies PLC 30 January 2024
30 January 2024
Pressure Technologies plc
("Pressure Technologies" or "the Company" or "the Group")
2023 Full-Year Results
Pressure Technologies plc (AIM: PRES), the specialist engineering group, is
pleased to announce its audited results for the 52 weeks to 30 September 2023
("FY23"), which are in line with the Group revenue and Adjusted EBITDA(1)
previously announced by the Company on 3 October 2023.
The audited Annual Report and Financial Statements will be published on the
Company's website today.
Financial Highlights
● Group revenue increased 29% to £32.0 million (2022: £24.9 million)
● Gross profit up 68% to £8.9 million at 28% margin (2022: £5.3 million at 21%
margin)
● Adjusted EBITDA(1) of £2.1 million (2022: Adjusted EBITDA loss of £0.9
million)
● Adjusted operating profit(2) of £0.6 million (2022: adjusted loss of £2.6
million)
● Reported loss before tax of £1.1 million (2022: loss of £4.0 million)
● Reported basic loss per share of 1.8p (2022: loss per share of 13.0p) and
Adjusted basic earnings per share(3) of 0.8p (2022: loss per share of 10.2p)
● Net debt(4) of £2.4 million (2022: £3.5 million); Net bank borrowings,
excluding asset finance lease liabilities and right of use asset lease
liabilities, of £nil (2022: £0.6 million)
1 Adjusted EBITDA is earnings / loss before interest, tax, depreciation,
amortisation and other exceptional costs
2 Adjusted operating profit / loss is operating profit/loss before
amortisation and other exceptional costs
3 Adjusted basic earnings / loss per share is reported earnings per share
before amortisation and other exceptional costs
4 Net debt comprises cash and cash equivalents, bank borrowings, asset finance
lease liabilities and right of use asset lease liabilities
1 Adjusted EBITDA is earnings / loss before interest, tax, depreciation,
amortisation and other exceptional costs
2 Adjusted operating profit / loss is operating profit/loss before
amortisation and other exceptional costs
3 Adjusted basic earnings / loss per share is reported earnings per share
before amortisation and other exceptional costs
4 Net debt comprises cash and cash equivalents, bank borrowings, asset finance
lease liabilities and right of use asset lease liabilities
Group Highlights
● FY23 has been a year of significant progress for the Group with market
conditions and order intake improving considerably alongside delivery of
operational improvements, facilitating a return to profitability in both
divisions.
● Group revenue in FY23 of £32.0 million (2022: £24.9 million), representing
like-for-like growth of 29% and underpinning a return to Adjusted EBITDA
profitability of £2.1 million (2022: loss of £0.9 million).
● Order intake of £43.0 million in FY23 (2022: £24.6 million) was 75% higher
than prior year and supported a year-end order book of £20.7 million (2022:
£10.4 million), the highest level for more than five years.
● Having considered the improved trading environment and outlook for the PMC
division, the Board decided to realise value through the divestment of PMC.
The Group has appointed advisors to handle the sale process which was launched
in December 2023.
● The proceeds of the sale of PMC are intended to repay the new Term Loan
facility and fund strategic investment opportunities at CSC to support its
growth in the hydrogen energy sector.
● Bank borrowings were reduced by £1.5 million in the year to £0.9 million
(2022: £2.4 million), facilitated by the improved trading performance and a
fundraising of £2.1 million (net of expenses) in December 2022.
● Subsequent to the year-end, in November 2023, the Group refinanced its
existing debt facilities with Lloyds Bank by arranging a new Term Loan
facility of £1.5 million with Rockwood Strategic plc and Peter Gyllenhammar
AB, two of its major shareholders. The new Term Loan facility provides a
financing bridge to the sale of PMC and is repayable upon a successful sale of
the division.
Chesterfield Special Cylinders ("CSC")
● CSC revenue FY23 of £20.7 million (2022: £17.6 million), driven by defence
work, including the major naval contract won in February 2023, underpinning
improved margin performance and a significant increase in divisional Adjusted
EBITDA to £3.9 million (2022: £1.1 million).
● Defence revenue of £17.2 million (2022: £13.5 million), reflecting 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
programme over three years to 2025.
● Hydrogen revenue was subdued at £2.1 million (2022: £2.4 million) due to
broader industry supply chain constraints and was driven equally by sales of
new refuelling station storage solutions and periodic inspection, testing and
recertification services for hydrogen road trailers.
● Enquiry levels for Integrity Management services increased sharply during
FY23, driven by growing activity in the offshore and hydrogen energy markets.
Subsequent to year-end, CSC has commenced work on a significant Integrity
Management contract for a major defence customer.
● CSC order intake in FY23 of £24.6 million (2022: £15.7 million) supports a
year-end order book of £11.3 million (2022: £7.4 million), providing good
revenue visibility into FY24.
● Operational improvements in the Sheffield facility are delivering increased
capacity and efficiency for hydrogen cylinder and road trailer new build,
inspection and testing services.
Precision Machined Components ("PMC")
● PMC revenue in FY23 of £11.3 million (2022: £7.3 million), reflecting strong
recovery in the oil and gas market.
● PMC returned to profitability in the year with divisional Adjusted EBITDA in
FY23 of £0.1 million (2022: loss of £0.3 million).
● PMC order intake strengthened significantly in FY23 and reached £18.4 million
for the year (2022: £8.9 million), an increase of over 100%, supporting a
year-end order book of £9.4 million (2022: £3.0 million), the highest order
book level seen in the last five years, providing strong revenue cover into
FY24.
● Major customers of PMC have continued to report increased activity levels
during the first quarter of FY24.
Outlook
● CSC will continue to focus on delivery of current high-value defence contract
milestones during the financial year ending 30 September 2024 ("FY24") and
expects to pass the peak of activity on these contracts in the third quarter.
● CSC then expects to re-balance its revenue profile across UK defence
programmes, global defence programmes and the hydrogen energy market in the
second half of FY24, with each of these markets presenting significant
opportunities over the medium-term.
● During this transitional period, CSC revenue is expected to decline slightly
on FY23 levels with a consequent reduction in divisional profitability in
FY24.
● Despite delays in the broader hydrogen supply chain, CSC is well positioned to
secure several identified projects in FY24 and remains positive about its
prospects 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.
● The announcement by UK Government in December 2023 of £90 million of funding
for 11 new hydrogen projects as part of the first Hydrogen Allocation Round
(HAR1) is a positive development providing opportunities for CSC over the next
2 years.
● Further improvement of financial performance in PMC is expected based on the
strong order book and improving operational performance.
● Given these divisional trends, the Board expects the Group's full-year FY24*
revenue and Adjusted EBITDA to be in-line with current market expectations
(revenue of £34 million and Adjusted EBITDA of £2.1 million).
* FY24 outlook includes CSC and PMC, on the basis that PMC is not sold in FY24
and remains a continuing operation
Chris Walters, Chief Executive of Pressure Technologies plc, commented:
"Significantly improved performance in FY23 reflects the strong defence order
book in Chesterfield Special Cylinders and the continued recovery of oil and
gas market trading conditions in Precision Machined Components.
In Chesterfield Special Cylinders, the order book reached the highest level on
record following an £18.2 million contract award to supply air pressure
vessels for a major UK naval new construction programme. This order was the
largest ever for the division, providing good visibility of high-value work
into FY24.
Despite delays in the hydrogen energy supply chain over the past year, we
remain well positioned in this emerging market to supply static and mobile
hydrogen storage solutions, and to provide the through-life inspection,
testing and recertification services for these safety-critical systems over
the medium and longer term. The announcement in December 2023 by UK Government
of the first Hydrogen Allocation Round is positive for the market and presents
opportunities for CSC over the next two years.
In Precision Machined Components, the recovery of order intake levels was very
strong in the year facilitating a return to profitability for the division. In
light of these improving conditions, the Board decided to divest PMC and
launched the sale process in December 2023. We are targeting completion of the
sale in the third quarter of FY24, with the sale proceeds to be used to repay
the new term loan recently arranged with two of our major shareholders and to
fund the development of CSC in the hydrogen energy market.
We have a clear focus on shareholder value and the delivery of strategic
objectives for the Group in FY24."
Annual General Meeting
The Annual General Meeting of the Company will take place on Thursday 21 March
2024 at 09:30 am at the offices of Singer Capital Markets, 1 Bartholomew Lane,
London EC2N 2AX.
Notice of FY24 Interim Results
The Company expects to publish its unaudited interim results for the half year
ending 30 March 2024 by the end of May 2024.
For further information, please contact:
Pressure Technologies plc Tel: 0333 015 0710
Chris Walters, Chief Executive company.secretary@pressuretechnologies.co.uk
Steve Hammell, Chief Financial Officer
Singer Capital Markets (Nomad and Broker) Tel: 0207 496 3000
Rick Thompson / Asha Chotai
COMPANY DESCRIPTION
www.pressuretechnologies.com (http://www.pressuretechnologies.com/)
With its head office in Sheffield, the Pressure Technologies Group was founded
on its leading market position as a designer and manufacturer of
high-integrity, safety-critical components and systems serving global supply
chains in oil and gas, defence, industrial and hydrogen energy markets.
The Group has two divisions:
· Chesterfield Special Cylinders (CSC) -
www.chesterfieldcylinders.com (http://www.chesterfieldcylinders.com/)
· Precision Machined Components (PMC) - www.pt-pmc.com
(http://www.pt-pmc.com/)
o Includes the Al-Met, Roota Engineering and Martract sites.
Chair's statement
Pressure Technologies plc (the "Company") and its subsidiaries (together "the
Group") are globally recognised as a leading provider of safety-critical
pressure containment and control products and services to customers in the
defence, energy and industrials sectors who operate in highly demanding
environments. The operating divisions of the Group are Chesterfield Special
Cylinders ("CSC") and Precision Machined Components ("PMC"). The Annual Report
and Financial Statements and this announcement cover the financial year ended
30 September 2023 ("FY23").
FY23 has been a year of significant progress for the Group. Market conditions
and order intake have improved considerably, we have made significant
operational improvements, facilitating a return to profitability in both
divisions, and we have reduced our debt levels and restructured our financing.
This provides a solid foundation to deliver on our strategic priorities in the
year ahead.
I am pleased to report that in FY23 we won new orders of £43.0 million (FY22:
£24.6 million), an increase of 75%.
On 6 February 2023, we announced the award of a £18.2 million major defence
contract, propelling CSC order intake in FY23 to £24.6 million (FY22: £15.7
million). Moreover, PMC order intake was £18.4 million (FY22: £8.9 million),
an increase of over 100%, and has accelerated since March 2023 when we won a
record £3.0 million order from an established international OEM customer for
the supply of flow control components and sub-assemblies. The OEM customers of
PMC 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. The order book of the Group at the end of the year was £20.7
million (FY22: £10.4 million), positioning the Group well for FY24.
The Group delivered much improved financial performance in FY23. Group revenue
was £32.0 million (FY22: £24.9 million), facilitating a return to
profitability with Adjusted EBITDA of £2.1 million (FY22: Adjusted EBITDA
loss of £0.9 million). The turnaround in performance started in the first
half of the year and accelerated in the final quarter as the full benefits of
our investments in operational efficiency and continuous improvement in our
manufacturing facilities were realised.
CSC performed very strongly in FY23, reporting revenue of £20.7 million
(FY22: £17.6 million) and Adjusted EBITDA of £3.9 million (FY22: £1.1
million), delivering an operating margin of 19%. The rapid improvement in
profitability was driven by the major defence contract won in the year which
continues to provide order cover into 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.
CSC is also 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 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 hopeful of securing several contracts during FY24 and remain positive
about our prospects 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.
PMC delivered a significant turnaround in performance in FY23, reporting
revenue of £11.3 million (FY22: £7.3 million) and Adjusted EBITDA of £0.1
million (FY22: Adjusted EBITDA loss of £0.3 million), achieving a return to
full-year profitability. The final quarter of FY23 was particularly strong,
with a substantial increase in activity levels following the surge in order
intake mid-way through the year. Conditions in the oil and gas market have
improved further during the second half of the year, supported by a rising oil
price, such that PMC exited FY23 with an order book of £9.4 million (FY22:
£3.0 million), the highest level seen in the last 5 years. The division is
well placed to carry this momentum into FY24.
Having considered the current trading environment, improved outlook and
positive developments being made by PMC, the Board has decided that the timing
is now favourable to realise value through the divestment of the PMC division.
The Group has appointed advisors to handle the sale process which was launched
in December 2023. The sale process is expected to run for approximately 6
months into the third quarter FY24. The proceeds of the sale are intended to
repay the new Term Loan facility and fund strategic investment opportunities
at CSC to support its growth in the hydrogen energy sector.
The Group has strengthened its financing position considerably during the
year. On 6 December 2022, we completed a £2.1 million equity fundraise with
support from institutional and retail shareholders. The funds raised provided
important flexibility and liquidity during the first half of FY23 as a bridge
to stronger cash generation from major contracts in CSC and the return to
profitability in PMC, whilst supporting a debt repayment of £0.5 million to
Lloyds Banking Group in March 2023. With the improvement in trading
performance and cashflow delivered in the second half of the year, a further
debt repayment of £1.0 million was made on 30 September 2023, reducing the
balance payable to Lloyds to £0.9 million.
Subsequent to the year-end, on 14 November 2023, the Group exited its existing
Revolving Credit Facility, provided by Lloyds, by arranging a new Term Loan
facility of £1.5 million with Rockwood Strategic plc and Peter Gyllenhammar
AB, two of its major shareholders. The new Term Loan facility provides a
financing bridge to the sale of PMC and is repayable upon a successful sale of
the division. In conjunction with the provision of the new Term Loan, Rockwood
Chair's statement (continued)
and Gyllenhammar were issued with 1,933,358 warrants in aggregate
(representing 5% of the issued share capital) to subscribe for ordinary shares
in the Company at a price of 32 pence per share.
During the year, the Board also strengthened the Executive team. In April
2022, we welcomed Chris Webster to the Group as Chief Operating Officer. Chris
has brought considerable operational experience to the business based on his
30 year career in manufacturing and has delivered positive, controlled change
across all sites, improving production efficiencies, supply chain controls and
project management disciplines. These operational improvement initiatives have
been critical to returning the Group to profitability and improving its
financial position.
On 17 January 2023, we announced the appointment of Steve Hammell as Chief
Financial Officer. Steve joined the Board in May 2023 and brings considerable
financial expertise to the Group based on his 25 year career in corporate
finance and industry. Since arriving, he has led the appointment of new
auditors, improved our forecasting procedures, driven the successful
refinancing process and initiated the sale process for PMC.
I am also pleased that Richard Staveley of Rockwood Strategic plc, a major
shareholder in the Company, joined the Board as a non-executive director from
23 May 2023 and played a central role in delivering the refinancing.
The Group will continue to prioritise investment in the skills and development
of its people. The Board are mindful that the capabilities of CSC and PMC are
dependent on building the qualifications and experience of our employees and
has therefore remained committed to its apprenticeship programme, growing the
skilled workers of the future. The Board also emphasises improvement in its
health and safety and environmental performance, investing in safety enhancing
projects. We continue to place a high premium on our technical and engineering
expertise that underpins the performance of our products and services for the
benefit of our customers.
With a much stronger order book, a strengthened Executive team and clear
strategic priorities for the Group, we are very excited about the
opportunities presented to the Group as we look into 2024.
Nick Salmon
Chair
30 January 2024
Business and financial review
Group
FY23 has been a year of significant progress for the Group. Market conditions
and order intake improved consistently as the year progressed and we made
significant operational improvements, facilitating a return to trading
profitability.
New order intake in FY23 was £43.0 million (FY22: £24.6 million), an
increase of 75%. On 6 February 2023, we announced the award of a £18.2
million major defence contract, propelling CSC order intake in FY23 to £24.6
million (FY22: £15.7 million). Moreover, PMC order intake was £18.4 million
(FY22: £8.9 million), an increase of over 100%, and has accelerated since
March 2023 when we won a record £3.0 million order from an established
international OEM customer.
The turnaround in financial performance started in the first half of the year
and accelerated in the final quarter as the full benefits of our investments
in operational efficiency and continuous improvement in our manufacturing
facilities were realised.
Group revenue for the year was £32.0 million (2022: £24.9 million) and
Adjusted EBITDA was £2.1 million (2022: Adjusted EBITDA loss of £0.9
million). The Group reported adjusted operating profit for the year of £0.6
million (2022: adjusted operating loss of £2.6 million).
The order book of the Group at the end of the year was £20.7 million (FY22:
£10.4 million), positioning the Group well for FY24.
£ million 2023 2022 2021 2020 2019
Group Revenue 32.0 24.9 25.3 25.4 28.3
Defence 17.2 13.5 11.1 5.1 9.1
Hydrogen Energy 2.1 2.4 2.2 0.2 0.7
Oil & Gas 11.8 7.9 6.1 14.9 16.3
Industrial 0.9 1.1 5.9 5.2 2.2
Group Gross margin 28% 21% 23% 21% 32%
Group Adjusted EBITDA 2.1 (0.9) 0.1 (0.8) 3.5
Group Operating profit / (loss) before amortisation, impairments and 0.6 (2.6) (1.5) (2.4) 2.2
exceptional costs
Group Loss before taxation (1.1) (4.0) (5.0) (20.0) (0.5)
The Group reported a loss before taxation of £1.1 million (2022: loss of
£4.0 million) due to exceptional costs of £1.3 million (2022: £1.0 million)
and finance costs of £0.4 million (2022: £0.3 million).
The exceptional costs related to professional fees incurred in the proposed
refinancing of the banking facilities of the Group during the year, corporate
finance advisory fees exploring the potential sale of PMC in the first half of
the year and the costs of re-organising the senior management of the Group.
Business and financial review (continued)
Chesterfield Special Cylinders
£ million 2023 2022 2021 2020 2019
Revenue 20.7 17.6 18.9 11.2 13.9
Defence 17.2 13.5 11.1 5.1 9.1
Hydrogen Energy 2.1 2.4 2.2 0.2 0.7
Oil and Gas 0.9 1.0 0.3 1.0 2.2
Industrial 0.5 0.7 5.3 4.9 1.9
Gross margin 34% 26% 30% 26% 36%
Adjusted EBITDA 3.9 1.1 2.6 0.5 2.6
Operating profit / (loss) before amortisation, impairments and exceptional 3.1 0.4 2.0 (0.1) 2.1
costs
Chesterfield Special Cylinders ("CSC") delivered revenue of £20.7 million
(FY22: £17.6 million) and Adjusted EBITDA of £3.9 million (2022: 1.1
million), a much improved performance in the year. The division reported
adjusted operating profit of £3.1 million (FY22: £0.4 million).
CSC's order intake in FY23 was £24.6 million (FY22: £15.7 million), an
increase of 57%. This supported a year-end order book of £11.3 million (2022:
£7.4 million), positioning the division well for FY24.
The recovery in revenue, to the highest level seen in the last 5 years, was
driven by work for the defence sector. 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. This contract, valued at £18.2
million, is the largest ever awarded to CSC and will be delivered to the
customer over three years. Activity on the contract commenced immediately upon
placement and accelerated in the final quarter of FY23, driving revenue and
Adjusted EBITDA for the year.
CSC was also active on contracts for global defence customers in France and
Australia during the year. We expect revenue from global defence to increase
further in FY24.
Revenue for Integrity Management field services from defence customers was
below expectations in the year at £1.2 million (2022: 1.8 million) due to the
postponement of several naval vessel deployments. However, we expect Integrity
Management to resume profitable growth in FY24.
The significant increase in defence revenue, up 27% on prior year, was the
main driver of the improvement in gross margin to 34% (2022: 26%), reflecting
CSC's strong competitive position in the defence supply chain.
Growth opportunities for Integrity Management services more generally remain
strong in key markets of defence, offshore services, nuclear and industrial
ground storage. Enquiry levels from offshore services customers increased
sharply during FY23, driven by growing activity in the market to support
offshore oil and gas projects. Integrity Management has the potential to
provide recurring revenue streams at attractive margins and is a key strategic
priority for FY24.
Revenue from hydrogen projects in the year was £2.1 million (2022: £2.4
million), reflecting lower order placement by customers during the year due to
broader supply chain challenges, including performance issues with
electrolysers and extended lead times for gas compression systems.
Whilst these supply chain issues for electrolysers and gas 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.
Business and financial review (continued)
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. In
addition, in-situ testing and factory reconditioning of hydrogen storage and
transportation systems present additional exciting growth opportunities for
CSC. Throughout the year, CSC continued to raise the profile of its hydrogen
capabilities, products and services during events and exhibitions held in the
UK and Europe.
Based on market evaluation and evolving customer requirements, we are
currently developing solutions for higher storage pressures and efficient road
trailer designs. Operational improvements in the Sheffield facility have
delivered increased capacity and efficiency for hydrogen road trailer assembly
and for reconditioning, inspection and testing services and we remain focused
on delivering improved revenue and contract margins from these growth areas.
In December 2023, UK Government announced the award of £90 million of funding
for the construction of 11 UK hydrogen projects as part of the first Hydrogen
Allocation Round (HAR1). The first projects are expected to be operational in
2025. CSC has developed commercial relationships with a number of these new UK
projects providing a pipeline of opportunities for the next two years.
Precision Machined Components
£ million 2023 2022 2021 2020 2019
Revenue 11.3 7.3 6.4 14.2 14.4
Oil and Gas 10.9 6.9 5.7 13.9 14.0
Industrial 0.4 0.4 0.7 0.3 0.4
Gross margin 17% 11% 11% 17% 29%
Adjusted EBITDA 0.1 (0.3) (0.8) 0.2 2.6
Operating (loss) / profit before amortisation, impairments and exceptional (0.6) (1.1) (1.6) (0.7) 1.9
costs
Precision Machined Components (PMC) delivered revenue of £11.3 million (2022:
£7.3 million) and Adjusted EBITDA of £0.1 million (2022: Adjusted EBITDA
loss of £0.3 million). The division reported an adjusted operating loss of
£0.6 million (2022: adjusted operating loss of £1.1 million). This is an
encouraging performance during a critical recovery period for the oil and gas
sector and positions the division well for FY24.
PMC's order intake in FY23 was £18.4 million (FY22: £8.9 million), an
increase of over 100%. This supported a year-end order book of £9.4 million
(2022: £3.0 million), substantially above prior year and at the highest level
seen in the last 5 years, providing strong revenue visibility into FY24.
Order intake from the oil and gas sector accelerated from March 2023 following
a record £3.0 million order from an established international OEM customer.
Moreover, the OEM customers of PMC 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.
At Roota Engineering, the demand for subsea well intervention tools, valve
assemblies and control module components has recovered strongly as major OEM
customers including Expro, Halliburton, Schlumberger and Aker continue to
report a stronger oil and gas market outlook for 2024 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 Roota's 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. This
supported a significant step-up in activity levels at Roota in the third and
fourth quarters of FY23 with resilient margins reported.
Al-Met has remained focused on the improvement of operational performance,
efficiency and competitiveness and is well positioned for a recovery in demand
for precision, high-pressure valve control components. On 27 March 2023, the
Group announced that Al-Met had been awarded an unprecedented order of £3.0
million from an
international OEM customer for the supply of flow control components and
sub-assemblies used in high-pressure extreme service oil and gas applications.
This order supported a significant ramp-up of activity in the fourth quarter
of FY23 at Al-Met. However, Al-Met's margins have remained challenged during
this recovery phase and are not expected to show material improvement until
the middle of FY24. To support this recovery in margins, the Group has
prioritised capital investment at Al-Met that reduces dependency on
sub-contractors and drives raw material savings.
Business and financial review (continued)
On 24 October 2023, the Group announced that having considered the current
trading environment, improved outlook and the improved financial performance
of PMC in the second half of FY23, the timing was favourable to realise value
through the divestment of the PMC division. The Board has appointed DSW
Corporate Finance to handle the sale process which was launched in December
2023.
Central Costs
£ million 2023 2022 2021 2020 2019
Cash costs (1.9) (1.7) (1.7) (1.4) (1.6)
Depreciation (0.1) (0.2) (0.2) (0.2) (0.1)
Operating loss (2.0) (1.9) (1.9) (1.6) (1.7)
Central costs include the following items:
· the employment costs of the Board of Directors;
· the employment costs of central staff who undertake group-wide
activities;
· administration costs incurred by Directors and central staff;
· the regulatory costs of operating as a public limited company
quoted on the London Stock Exchange; and
· depreciation of assets held centrally.
Central cash costs increased to £1.9 million in the year (2022: £1.7
million) due to inflationary cost pressures.
Financial review
Financial performance
Revenue & Profitability
Record new defence orders and improving market conditions in the oil and gas
market have underpinned a significant improvement in performance in FY23.
Group revenue of £31.9 million was 28% higher than last year (2022: £24.9
million) and has helped drive gross profit to £8.9 million at 28% margin
(2022: £5.3 million at 21% margin).
The Group's gross margin improvement has been driven by achievement of
high-value milestones on UK defence contracts, boosting CSC gross margin to
34% (2022: 26%). In addition, the higher level of activity and throughput at
PMC, improving asset utilisation, has increased PMC gross margins to 17%
(2022: 11%), contributing to the increase in Group margins.
Overhead costs increased in the year to £8.4 million (2022: £7.9 million).
This increase has been driven by the need to re-build the capability of the
organisation following the Covid-19 pandemic in order to maximise future
growth opportunities in CSC and PMC. The overhead base has also been impacted
by the high levels of cost inflation experienced during the year driving
increased IT, recruitment, marketing and travel costs.
The Group reported adjusted operating profit of £0.6 million (2022: adjusted
operating loss of £2.6 million) in the year. Allowing for depreciation
charges of £1.5 million (2022: £1.7 million), the Group delivered Adjusted
EBITDA of £2.1 million in the year (2022: Adjusted EBITDA loss of £0.9
million), demonstrating the strong turnaround in underlying financial
performance.
Exceptional costs
Exceptional costs of £1.3 million (2022: £1.0 million) were incurred in the
year relating to professional fees incurred in the proposed refinancing of the
banking facilities of the Group during the year, corporate finance advisory
fees in relation to the potential sale of PMC in the first half of the year
and the costs of re-organising the senior management of the Group.
Impairment Review
The Group tests annually for impairment, in accordance with IAS 36, if there
are indicators that intangible or tangible fixed assets might be impaired.
The impairment methodology identifies two Cash Generating Units ("CGU's")
within the Group, being CSC and PMC. Each CGU is assessed for potential
indicators of impairment, including internal or external factors or events
that
could reduce the recoverable value of the fixed assets of the Group. If
indicators of impairment are identified, a full impairment review is
undertaken to determine the recoverable amount of the CGU.
Business and financial review (continued)
The recoverable amount of a CGU is determined using a discounted cashflow
model that is based upon a five-year forecast period. The forecast takes into
account the firm order book, sales pipeline and market opportunities of the
CGU, together with expected gross margin performance and consideration of the
cost base, planned capital expenditure and estimated working capital needs of
the CGU. A long-term growth assumption is applied beyond the five-year
forecast period. The future cashflows are then discounted to a present,
recoverable value by applying a risk-adjusted pre-tax discount rate.
As detailed further in note 2 to the accounts, an impairment review was
undertaken for each of CSC and PMC. The review concluded that no impairment
was required in these financial statements.
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 freehold land and buildings, which indicated that
no impairment of this asset was required.
Taxation
The tax credit for the year was £0.4 million (2022: tax charge £0.1
million). The current year tax credit was principally due to a £0.4 million
receipt in respect of R&D tax credit claims submitted in the year in
respect of FY21 and FY22.
Corporation tax refunded in the year totalled £0.4 million (2022: £0.1
million).
Loss per share
Basic loss per share was 1.8 pence (2022: loss per share 13.0 pence). Allowing
for add-back of exceptional costs and amortisation charges, adjusted earnings
per share was 0.8 pence (2022: adjusted loss per share of 10.2 pence).
Dividends
No dividends were paid in the year (2022: nil) and no dividends have been
declared in respect of the year ended 30 September 2023 (2022: nil).
Distributable reserves in the parent company totalled £2.6 million at year
end (2022: £5.7 million).
Operating cash flow, capital expenditure and cash flow before financing
Operating cash flow was £1.2 million (2022: £1.8 million), driven by
Adjusted EBITDA of £2.1 million (2022: Adjusted EBITDA loss of £0.9
million), accounting add-backs of £0.3 million (2022: deductions of £0.3
million) and working capital outflows of £1.2 million (2022: inflows of £3.0
million). Key movements within working capital in the year included the
build-up of inventory across the Group as a result of the increased activity
in the second half of the year.
Capital expenditure in the year was £0.6 million (2022: £0.5 million)
incurred principally to replace plant and equipment for productive use.
Proceeds from the disposal of fixed assets was £0.2 million (2022: £2.1
million from sale and leaseback of property).
Allowing for exceptional costs of £1.3 million (2022: £1.0 million), finance
costs of £0.4 million (2022: £0.3 million) and corporation tax refunds of
£0.4 million (2022: £0.1 million), cash flow before financing was an outflow
of £0.5 million (2022: inflow of £2.2 million).
Financing and liquidity
On 6 December 2022, the Group completed a £2.1 million equity fundraise (net
of transaction costs) with support from institutional and retail investors.
The funds raised provided important flexibility and liquidity during the first
half of FY23 and a bridge to profitable, cash-generative trading driven by the
commencement of major defence contracts in CSC and recovering order intake in
PMC.
The cash balance at 30 September 2023 was £0.9 million (2022: £1.8 million).
The reduction in cash of £0.9 million was driven by the equity fundraise of
£2.1 million, the cash outflow before financing of £0.5 million, the
repayment of borrowings of £1.5 million and the repayment of lease
liabilities of £1.0 million.
Net debt at 30 September 2023 was £2.4 million (2022: £3.5 million). The
reduction in net debt of £1.1 million was driven by the equity fundraise of
£2.1 million, partially offset by the cash outflow before financing of £0.5
million and new lease liabilities of £0.5 million.
Subsequent to the end of FY23, on 14 November 2023, the Group exited its
existing debt facilities provided by Lloyds Banking Group by arranging a new
Term Loan facility of £1.5 million with Rockwood Strategic plc and Peter
Gyllenhammar AB, two of its major shareholders. The new Term Loan is committed
for a period of 5 years and is secured against the assets of the Group.
Business and financial review (continued)
In conjunction with the provision of the new Term Loan, Rockwood and
Gyllenhammar were issued with 1,933,358 warrants in aggregate (representing 5%
of the issued share capital) to subscribe for ordinary shares in the Company
at a price of 32 pence per share, representing a 20% premium to the closing
share price on 23 October 2023 (being the day prior to the announcement of the
new facility). The warrants may be exercised at any time in the 5 years
following drawdown of the new facility and continue to be exercisable in the
event the facility is repaid before its final expiry.
Going concern
These financial statements have been prepared on the going concern basis.
The Directors have prepared financial projections for the period to September
2025 and these demonstrate that the Group can operate within its existing
financing facilities and meet is financial obligations as they fall due.
The base case projections recognise that the Group remains dependent on the
profitability of CSC which is currently dependent on large UK defence
contracts. During the projection period, CSC is expected to undergo a period
of transition, with revenue from UK defence contracts falling and revenue from
the hydrogen energy market and global defence customers expected to increase.
Over the short-term, this is expected to result in lower revenues and earnings
for CSC, which is factored into the financial projections. The base case
projections also recognise the much improved performance of PMC and the more
favourable outlook for the oil and gas market.
The Directors have also developed downside scenarios and have modelled
reasonably possible delays to delivery of UK defence milestones and delays to
placement of major orders from new hydrogen customers. In the event of such
delays, 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.
Reflecting management's confidence in delivering large UK defence contracts
and winning new hydrogen contracts, and having refinanced its debt facilities
in November 2023, the Directors have concluded that the Group does have
sufficient financial resources to meet its obligations as they fall due for
the next 12 months and no material uncertainty relating to Going Concern has
been identified.
Outlook
During FY24, CSC expects to pass the peak of activity on current high-value
defence contract milestones and will seek to re-balance its revenue profile
across global defence programmes and the hydrogen energy market, with each of
these markets presenting significant opportunities over the medium-term.
During this transitional period, CSC revenue is expected to decline slightly
on FY23 levels with a consequent reduction in divisional profitability in
FY24.
PMC continues to see increasing demand from customers and improving
operational performance. The momentum in order intake provides significant
confidence in delivering an improved full-year FY24 performance for the PMC
division. As previously announced, this improved trading environment underpins
the decision of the Board to divest PMC.
Given these divisional trends, the Board expects the Group's full-year FY24*
revenue and Adjusted EBITDA to be in-line with current market expectations
(revenue of £34 million and Adjusted EBITDA of £2.1 million).
* FY24 outlook includes CSC and PMC, on the basis that PMC is not sold in FY24
and remains a continuing operation
Chris Walters
Chief Executive
30 January 2024
Consolidated statement of comprehensive income
For the 52 week period ended 30 September 2023
Notes 52 weeks ended 52 weeks ended
30 September 1 October
2023 2022
£'000 £'000
Revenue 1 31,944 24,939
Cost of sales (23,001) (19,680)
Gross profit 8,943 5,259
Administration expenses (8,398) (7,883)
Operating profit / (loss) before amortisation and exceptional costs 545 (2,624)
Separately disclosed items of administration expenses:
Amortisation 5 - (101)
Exceptional costs 6 (1,255) (968)
(9,653) (8,952)
Total administration expenses
Operating loss (710) (3,693)
Finance costs 3 (406) (292)
Loss before taxation 4 (1,116) (3,985)
Taxation 7 437 (52)
Loss for the period attributable to the owners of the parent (679) (4,037)
Other comprehensive income / (expense) to be reclassified to profit or loss in 12 (5)
subsequent periods:
Currency exchange differences on translation of foreign operations
Total other comprehensive income / (expense) 12 (5)
Total comprehensive expense for
the period attributable to the owners of the parent (667) (4,042)
Basic loss per share
From loss for the period 8 (1.8)p (13.0)p
Diluted loss per share
From loss for the period 8 (1.8)p (13.0)p
Consolidated statement of financial position
As at 30 September 2023
Notes 30 September 1 October
2023 2022
£'000 £'000
Non-current assets
Property, plant and equipment 10,287 11,197
Deferred tax asset 700 663
10,987 11,860
Current assets
Inventories 5,570 4,556
Trade and other receivables 9,384 9,331
Cash and cash equivalents 945 1,783
Current tax 58 58
15,957 15,738
Total assets 26,944 27,598
Current liabilities
Trade and other payables (9,326) (9,477)
Borrowings - revolving credit facility 9 (907) (2,407)
Lease liabilities 10 (697) (839)
(10,930) (12,723)
Non-current liabilities
Other payables (12) (32)
Lease liabilities 10 (1,704) (2,037)
Deferred tax liabilities (712) (703)
(2,428) (2,772)
Total liabilities (13,358) (15,495)
Net assets 13,586 12,103
Equity
Share capital 1,933 1,553
Share premium account 1,699 -
Translation reserve (253) (265)
Retained earnings 10,207 10,815
Total equity 13,586 12,103
Consolidated statement of changes in equity
For the 52 week period ended 30 September 2023
Share Share Translation reserve Retained earnings Total
capital premium equity
Notes account
£'000 £'000 £'000 £'000 £'000
Balance at 2 October 2021 1,553 - (260) 15,784 17,077
Prior period adjustment* 14 - - - (1,054) (1,054)
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
- - (5) - (5)
Other comprehensive expense:
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
Shares issued 380 1,699 - - 2,079
Share based payments - - - 71 71
Transactions with owners 380 1,699 - 71 2,150
- - - (679) (679)
Loss for the period
- - 12 - 12
Other comprehensive income:
Exchange differences on translating foreign operations
Total comprehensive income / (expense) - - 12 (679) (667)
Balance at 30 September 2023 1,933 1,699 (253) 10,207 13,586
*A restatement of the Consolidated statement of changes in equity for the year
ended 2 October 2021 was undertaken to correct an error which related to the
incorrect treatment of certain contract accounting transactions (see Note 14).
Consolidated statement of cash flows
For the 52 week period ended 30 September 2023
Notes 52 weeks ended 52 weeks ended
30 September 1 October
2023 2022
£'000 £'000
Operating activities
Operating cashflow 11 1,223 1,787
Exceptional costs (1,255) (968)
Finance costs paid (406) (292)
Income tax refunded 408 138
Net cash (outflow) / inflow from operating activities (30) 665
Investing activities
Proceeds from sale of fixed assets 178 2,063
Purchase of property, plant and equipment (576) (536)
Net cash (outflow) / inflow from investing activities (398) 1,527
Net cash (outflow) / inflow before financing (428) 2,192
Financing activities
Shares issued (net of transaction costs) 2,079 -
Repayment of borrowings (1,500) (2,366)
Repayment of lease liabilities (989) (1,260)
Net cash outflow from financing activities (410) (3,626)
Net decrease in cash and cash equivalents (838) (1,434)
Cash and cash equivalents at beginning of period 1,783 3,217
Cash and cash equivalents at end of period 945 1,783
Bank borrowings (907) (2,407)
Lease liabilities (2,401) (2,876)
Net Debt 12 (2,363) (3,500)
Accounting Policies
1. 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 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 30 September 2023. 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 30 September 2023, 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 2023 statutory financial
statements upon which the auditor's opinion is unqualified and did not contain
a statement under either sections 498(2) or 498(3) of the Companies Act 2006.
The audit report for the period ended 30 September 2023 did not contain
statements under sections 498(2) or 498(3) of the Companies Act 2006.
The statutory financial statements for the period ended 30 September 2023 were
approved by the directors on 29 January 2024 but have not yet been delivered
to the Registrar of Companies. The statutory financial statements for the
period ended 1 October 2022 have been delivered to the Registrar of Companies.
2. 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 principal risks and uncertainties are set out on
pages 19 to 23 of the financial statements.
The Directors must consider and determine whether the Group has sufficient
financial resources to meet its obligations as they fall due for a period of
not less than 12 months from the date of approval of these accounts.
In making this assessment, the Directors have considered a range of factors,
including the prospects for the markets the Group serves; the position and
intentions of competitors; the customer base of the Group and any reliance on
a small number of customers; the supply chain of the Group and any reliance on
key suppliers; staff attrition and the risk of losing any key members of
staff; any actual or threatened litigation; relationships with HMRC and
regulators; historic, current and projected financial performance and cash
flow; relationships with debt and equity funders and the likely availability
of external funding; and the plans and intentions of management. The Directors
have also considered the economic backdrop and geopolitical risks to economic
activity from the Russia-Ukraine conflict and instability in the Middle East.
In undertaking their assessment, the Directors have prepared financial
projections for a period of at least 12 months from the date of approval of
these accounts. The current economic conditions have introduced additional
uncertainty into the Directors assessment, such that future potential outcomes
are more difficult to estimate. The Directors have therefore considered a
number of sensitivities to their projections to quantify potential downside
risks to future financial performance.
On 14 November 2023, the Group exited its Revolving Credit Facility with
Lloyds Bank by raising a new term loan facility ("the Facility") of £1.5
million from two of its major shareholders. The Facility is committed for a
period of five years and is not subject to any financial covenant tests. The
Facility is subject to capital repayments of £0.5 million during the
projection period which have been factored into the Directors' assessment.
Management have produced projections for the period up to September 2025 for
the Group, CSC and PMC, taking account of reasonably plausible changes in
trading performance and market conditions, which have been reviewed by the
Directors. In particular, the projections reflect that:
· the Group remains principally dependent on profitability at CSC;
· CSC is currently dependent on large UK defence contracts for its
profitability. During the projection period, CSC is expected to undergo a
period of transition, with revenue from UK defence contracts falling and
revenue from the hydrogen energy market and global defence customers
increasing. Over the short-term, this is expected to result in lower revenues
and earnings for CSC, which is factored into the financial projections.
However, there remain both internal and external risks to CSC's performance
over the projection period;
· the recent significantly improved trading in the PMC division as
oil and gas markets recover, following unprecedented order intake levels which
have resulted in an order book of £9.4 million as at 30 September 2023, the
highest ever order book level for the division.
Accounting policies (continued)
2. Going concern (continued)
The base case forecast demonstrates that the Group is projected to:
· generate profits and cash in the current financial year and
beyond; and
· generate sufficient cash to meet capital repayments under the
Facility.
Management has also developed downside scenarios, which include consideration
of the recent track record of not always achieving budgets. The downside
scenario recognises 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 and the requirement for CSC to win
significant new contracts from the hydrogen energy market.
Management have modelled the downside scenario based on reasonably possible
delays to:
· Delivery of UK defence milestones and revenue recognition
Achievement of milestones on these types of contracts can be subject to
uncertainties including 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.
· Delays to placement of major orders from new hydrogen customers
Hydrogen energy is an emerging green energy market. Major UK and European
projects have already been subject to significant delays which have impacted
FY23 performance. Placement of major orders from new hydrogen customers is
subject to uncertainties.
Other factors which could negatively impact the projections include:
· Weaker revenue from Integrity Management deployments due to
customer delays; and
· The recent improvement in PMC revenue and order book not being
sustained going forward due to weaker than expected oil and gas market
conditions.
The Group believes that these other factors are individually less likely to be
material to the achievement of the projections than potential delays in UK
defence milestones and hydrogen orders, but in the event that they occur
together with these risks, they may have a negative impact on cash flow at
certain points in the projection period.
In the event of the delays identified above, 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 the major UK
defence 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.
The Directors also note that the Group has net current assets of £5.0 million
at 30 September 2023.
Reflecting management's confidence in delivering large UK defence contracts
and winning new hydrogen contracts, and having already refinanced its debt
facilities, the Directors have concluded that the Group does have sufficient
financial resources to meet its obligations as they fall due for the next 12
months and no material uncertainty relating to Going Concern has been
identified.
The Group and Parent Company continue to adopt the going concern basis in
preparing these financial statements. Consequently, these financial statements
do not include any adjustments that would be required if the going concern
basis of preparation were to be inappropriate.
3. New standards adopted in 2023
No new standards were applied during the year.
4. Amendments to IFRSs that are mandatorily effective for future years
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
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 30 September 2023
Precision Machined Components All other segments
Cylinders Total
£'000 £'000 £'000 £'000
Revenue from external customers* 20,667 11,277 - 31,944
Gross profit / (loss) 7,042 1,939 (38) 8,943
Adjusted EBITDA 3,854 82 (1,847) 2,089
Depreciation (710) (717) (117) (1,544)
Operating profit / (loss) before amortisation and exceptional costs 3,144 (635) (1,964) 545
Exceptional costs (236) (57) (962) (1,255)
Operating profit / (loss) 2,908 (692) (2,926) (710)
Net finance costs (69) (145) (192) (406)
Profit / (loss) before tax 2,839 (837) (3,118) (1,116)
Segmental net assets** 10,477 1,971 1,138 13,586
Other segment information:
Taxation credit / (charge) 254 189 (6) 437
Capital expenditure - property, plant and equipment
243 813 35 1,091
* Revenue from external customers is stated after deducting inter-segment
revenue of £671,000 for Precision Machined Components.
** Segmental net assets comprise the net assets of each division adjusted to reflect the elimination of the cost of investment in subsidiaries and the provision of financing loans provided by Pressure Technologies plc.
Notes to the consolidated financial statements (continued)
1. Segment analysis (continued)
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
Adjusted EBITDA 1,088 (310) (1,724) (946)
Depreciation (679) (790) (209) (1,678)
Operating profit / (loss) before amortisation 409 (1,100) (1,933) (2,624)
and exceptional costs
Amortisation - (161) 60 (101)
Exceptional (costs) / income (403) 50 (615) (968)
Operating profit / (loss) 6 (1,211) (2,488) (3,693)
Net finance costs (37) (73) (182) (292)
Loss before tax (31) (1,284) (2,670) (3,985)
Segmental net assets** 7,330 2,596 2,177 12,103
Other segment information:
Taxation credit / (charge) 50 (151) 49 (52)
Capital expenditure - property, plant and equipment
559 526 47 1,132
* Revenue from external customers is stated after deducting inter-segment
revenue of £nil for Precision Machined Components.
** Segmental net assets comprise the net assets of each division adjusted to
reflect the elimination of the cost of investment in subsidiaries and the
provision of financing loans provided by Pressure Technologies plc. The FY22
Segmental net assets for Precision Machined Components and Other Segments have
been restated due to a re-allocation of eliminating entries.
Notes to the consolidated financial statements (continued)
1. Segment analysis (continued)
The Group's revenue disaggregated by primary geographical markets is as
follows:
Revenue 2023 2022
Precision Machined Components Precision Machined Components
Cylinders Total Cylinders Total
£'000 £'000 £'000 £'000 £'000 £'000
United Kingdom 17,862 4,937 22,799 12,406 3,720 16,126
France 1,025 87 1,112 2,958 68 3,026
Norway 696 246 942 885 272 1,157
USA 2 1,593 1,595 3 1,071 1,074
Romania - 2,281 2,281 - 972 972
Italy - 537 537 - 764 764
Taiwan 158 - 158 393 - 393
Netherlands 75 - 75 359 - 359
Germany 140 - 140 272 - 272
Singapore - 816 816 - 21 21
Australia 277 188 465 19 142 161
Rest of Europe 128 28 156 157 8 165
Rest of World 304 564 868 131 318 449
20,667 11,277 31,944 17,583 7,356 24,939
During the year, there was one customer who contributed to over 10% of total
Group revenue. This customer accounted for revenue of £13.6 million (42.5%),
within the Cylinders segment (2022: two customers, £5.2 million (20.9%) and
£2.6 million (10.5%), both reported in the Cylinders segment).
The following table provides an analysis of the Group's revenue by market.
Revenue 2023 2022
£'000 £'000
Oil and gas 11,751 7,953
Defence 17,188 13,483
Industrial 938 1,099
Hydrogen energy 2,067 2,404
31,944 24,939
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 2023 2022
Precision Machined Components Precision Machined Components
Cylinders Cylinders
£'000 £'000 £'000 £'000
Sale of goods transferred at a point in time 3,843 10,903 3,336 7,021
Sale of goods transferred over time 15,397 - 12,584 -
Rendering of services 1,427 374 1,663 335
20,667 11,277 17,583 7,356
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 30 September 2023:
Revenue expected in future periods 2023
£'000
Sale of goods - Cylinders 7,826
The asset and liability balances in relation to existing contracts as at 30
September 2023 are disclosed in Note 10.
2. Impairment review
The Group tests annually for impairment, in accordance with IAS 36, if there
are indicators that intangible or tangible fixed assets might be impaired.
The impairment methodology identifies two Cash Generating Units ("CGU's")
within the Group, being CSC and PMC. Each CGU is assessed for potential
indicators of impairment, including internal or external factors or events
that could reduce the recoverable value of the fixed assets of the Group. If
indicators of impairment are identified, a full impairment review is
undertaken to determine the recoverable amount of the CGU.
The Directors exercise their judgment in determining the recoverable amount of
a CGU, involving the use of estimates in relation to the future prospects of
the CGU.
The recoverable amount of a CGU is determined using a discounted cashflow
model that is based upon a five-year forecast period. The forecast takes into
account the firm order book, sales pipeline and market opportunities of the
CGU, together with expected gross margin performance and consideration of the
cost base, planned capital expenditure and estimated working capital needs of
the CGU. A long-term growth assumption is applied beyond the five-year
forecast period. The future cashflows are then discounted to a present,
recoverable value by applying a risk-adjusted pre-tax discount rate.
If the recoverable value of a CGU is less than the carrying value of its
balance sheet, then an impairment charge may be required. The carrying value
of the balance sheet is determined by application of the accounting policies
of the Group.
In this reporting period, the Directors exercised their judgment on the basis
of information available at 30 September 2023.
CSC Impairment Review
In FY23 CSC's revenues were heavily weighted towards the UK defence sector. In
the next year, CSC is expected to transition towards the global defence and
hydrogen energy markets, reducing some of its dependency on UK defence
contracts. CSC is expected to generate lower revenue and earnings over the
short-term with the rate of growth of revenue and the level of achievable
margins from these new markets subject to risk over the medium-term.
This change in the composition of CSC's revenues and the requirement to
penetrate new markets is considered a potential indicator of asset impairment.
Therefore, an impairment review has been conducted on CSC.
The Directors have assumed that CSC is successful in winning significant new
contracts in the hydrogen energy market. However, the Directors expect that
gross margin generation on hydrogen contracts may be somewhat lower than UK
defence contracts which moderates the growth of Adjusted EBITDA in the
forecast period.
The future cashflows of CSC have been extrapolated in perpetuity at a rate of
5% and discounted at a risk-adjusted pre-tax discount rate of 16%. On this
basis, the recoverable value of CSC is estimated to be £18.9 million. The
carrying
value of the net assets of CSC at 30 September 2023, adjusting for cash,
intercompany and deferred tax balances, was £8.2 million. On this basis, an
impairment charge is not required.
The Directors have considered sensitivities to the future cashflows of CSC, in
particular a significantly reduced level of hydrogen revenue in the period
FY26-FY28, thereby reducing the value of CSC into perpetuity. Based on this
sensitivity, the recoverable value of CSC is estimated to be £9.5 million. On
this basis, an impairment charge is still not required.
The Directors have concluded that CSC does not require an impairment charge
for FY23 in relation to the carrying value of its assets or the carrying value
of its investment in its subsidiaries.
Notes to the consolidated financial statements (continued)
2. Impairment Review (continued)
PMC Impairment Review
PMC is heavily exposed to the oil and gas sector which is subject to
significant geopolitical influences giving rise to periods of short-term
volatility. From a longer-term perspective, the oil and gas sector is expected
to undergo gradual but consistent decline, exhibiting "sunset" characteristics
as major Western economies transition towards low carbon and green energy
sources to deliver on net-zero commitments. This trend is likely to limit the
long-term planning horizon for the Oil & Gas sector to a 20-30 year
period. These external factors are considered to be potential indicators of
asset impairment. Therefore, an impairment review has been conducted on PMC.
In FY23 PMC's revenues recovered strongly in the final quarter of the year
based on a much higher rate of manufacturing activity. Based upon the robust
order book and much more positive outlook for the oil and gas sector, PMC is
expected to be able to maintain this increased rate of activity and grow
in-line the broader global oil and gas market over the period FY25-FY28.
The future cashflows of PMC have been extrapolated beyond the forecast period
for a further 20 years only, given that the oil and gas sector is expected to
exhibit sunset characteristics over the medium- to long-term. The future
cashflows have been subject to growth of 6% pa for the period FY29-FY38 and to
a rate of decline of 2% pa for the period to FY39-FY48. Thereafter, no further
cashflows are assumed.
The future cashflows of PMC have been discounted at a risk-adjusted pre-tax
discount rate of 18%. On this basis, the recoverable value of PMC is estimated
to be £9.1 million. The carrying value of the net assets of PMC at 30
September 2023, adjusting for cash, intercompany and deferred tax balances,
was £5.8 million. On this basis, an impairment charge is not required.
The Directors have considered sensitivities to the future cashflows of PMC, in
particular rate of growth in the period FY26-FY28, reducing the value of PMC
in the extrapolation period to FY48. Based on this sensitivity, the
recoverable value of PMC is estimated to be £6.6 million. On this basis, an
impairment charge is still not required.
The Directors have concluded that PMC does not require an impairment charge
for FY23 in relation to the carrying value of its assets or the carrying value
of its investment in its subsidiaries.
Group Impairment Review
At Group level, the above assessments support a total recoverable value of
£28.0 million. Allowing for assets held centrally of £1.9 million, the
carrying value of the net assets of the Group, adjusting for cash,
intercompany and deferred tax balances, was £15.9 million. On this basis, an
impairment charge is not required.
On the basis of the sensitivities noted above, the total recoverable value of
the Group falls to £16.1 million. On this basis, an impairment charge is
still not required.
The Directors have concluded that the Group does not require an impairment
charge for FY23 in relation to the carrying value of its assets or the
carrying value of its investment in its subsidiaries.
The Directors are not aware of any other matters that would necessitate
changes to their key estimates.
3. Finance costs
2023 2022
£'000 £'000
Interest receivable (2) -
Interest payable on bank loans and overdrafts 193 168
Interest payable on lease liabilities 171 124
Other interest payable 44 -
406 292
Notes to the consolidated financial statements (continued)
4. Loss before taxation
Loss before taxation is stated after charging / (crediting):
2023 2022
£'000 £'000
Depreciation of property, plant and equipment - owned assets 1,057 1,114
Depreciation of property, plant and equipment - leased assets 487 564
Loss/(profit) on disposal of fixed assets 170 (327)
Amortisation of intangible assets - 101
Amortisation of grants receivable (20) (66)
Staff costs - excluding share based payments 11,018 9,234
Cost of inventories recognised as an expense 12,089 12,463
Share based payments 71 122
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.
5. Amortisation of intangible assets
2023 2022
£'000 £'000
Amortisation of intangible assets - 101
- 101
6. Exceptional costs
2023 2022
£'000 £'000
Debt advisory services to refinance banking facilities 373 344
Debt advisory services on behalf of Lloyds Banking Group 131 -
Corporate finance services 313 -
Property costs - 280
Final settlement for ERP system costs - 193
Reorganisation costs 309 -
Historical contract settlement 10 88
Write-down of obsolete historic inventory 111 121
Reversal of inventory provision from prior year (3) (91)
New Long-Term Incentive Plan set up costs - 33
Other 11 -
1,255 968
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 were incurred in FY23.
Notes to the consolidated financial statements (continued)
7. Taxation
2023 2022
£'000 £'000
Current tax credit
Current tax charge - (7)
Over provision in respect of prior years 409 65
409 58
Deferred tax credit / (charge)
Origination and reversal of temporary differences 144 494
Under provision in respect of prior years (116) (604)
28 (110)
Total taxation credit / (charge)
437 (52)
Corporation tax is calculated at 22% (2022: 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:
2023 2022
£'000 £'000
Loss before taxation (1,116) (3,985)
Theoretical tax credit at UK corporation tax rate 22% (2022: 19%) 246 757
Effect of (charges) / credits:
- non-deductible expenses (76) (20)
- non-deductible exceptional items (181) (159)
- adjustments in respect of prior years 293 (539)
- unrealised (loss) / profit in overseas entities (4) 34
- recognition and utilisation of losses brought forward 159 (125)
Total taxation credit / (charge) 437 (52)
An increase in the UK corporation tax rate to 25% was substantively enacted in May 2021 and took effect from 1 April 2023. The table above therefore uses the average rate of 22% for the current financial period.
As the most significant timing differences are not expected to unwind until 2024 or later, the deferred tax rate was maintained at 25% in the period.
Notes to the consolidated financial statements (continued)
8. Loss per ordinary share
The calculation of basic loss per share is based on the loss attributable to
ordinary shareholders divided by the weighted average number of shares in
issue during the period.
The calculation of diluted loss per share is based on basic loss per share,
adjusted to allow for the issue of shares on the assumed conversion of all
dilutive share options.
Adjusted loss per share shows loss per share after adjusting for the impact of
amortisation charges and any other exceptional items, and for the estimated
tax impact, if any, of those costs. Adjusted loss per share is based on the
loss as adjusted divided by the weighted average number of shares in issue.
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 30 September 2023
£'000
Loss after tax (679)
Number of shares ('000)
Weighted average number of shares - basic 37,400
Dilutive effect of share options 446
Weighted average number of shares - diluted 37,846
Loss per share - basic and diluted (1.8)p
The effect of anti-dilutive potential shares is not disclosed in accordance
with IAS 33.
The Group adjusted loss per share is calculated as follows:
£'000
Loss after tax (679)
Exceptional costs (see Note 6) 1,255
Tax effect of the above adjustments (276)
Adjusted profit 300
Adjusted earnings per share 0.8p
The tax effect is based on applying a 22% tax rate to the adjustment for
exceptional costs.
Notes to the consolidated financial statements (continued)
8. Loss per ordinary share (continued)
For the 52 week period ended 1 October 2022
£'000
Loss after tax (4,037)
Number of shares ('000)
Weighted average number of shares - basic 31,067
Dilutive effect of share options 661
Weighted average number of shares - diluted 31,728
Loss per share - basic and diluted (13.0)p
The effect of anti-dilutive potential shares is not disclosed in accordance
with IAS 33.
The Group adjusted loss per share is calculated as follows:
£'000
Loss after tax (4,037)
Amortisation (see Note 5) 101
Exceptional costs (see Note 6) 968
Tax effect of the above adjustments (203)
Adjusted loss (3,171)
Adjusted loss per share (10.2)p
The tax effect is based on applying a 19% tax rate to the adjustments for
amortisation and exceptional costs.
Notes to the consolidated financial statements (continued)
9. Borrowings
2023 2022
£'000 £'000
Current
Revolving credit facility 907 2,407
During the period, the bank loans drawn under the Revolving Credit Facility
("RCF") had an average annual interest rate of 3.70% above LIBOR.
On 21 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.
On 23 June 2023, the Group's RCF was amended and the facility expiry
accelerated from March 2024 to December 2023. In addition, Lloyds Bank agreed
to waive the financial covenant tests due at 30 Jun 2023.
The Group's RCF was drawn at £0.9 million at 30 September 2023 (1 October
2022: £2.4 million). These bank borrowings are secured on the property, plant
and equipment of the Group (see Note 14) 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:
2023 2022
£'000 £'000
Due for settlement within one year:
Revolving credit facility 907 2,407
The Group had undrawn borrowing facilities of nil at the year-end (2022: nil).
Subsequent to year end, on 14 November 2023 the RCF was repaid in full from
the proceeds of a new Term Loan facility arranged with two of the major
shareholders of the Company (see Note 13).
Notes to the consolidated financial statements (continued)
10. Lease Liabilities
Lease liabilities are presented in the statement of financial position as
follows:
2023 2022
£'000 £'000
Current
Asset finance lease liabilities 456 629
Right of use asset lease liabilities 241 210
697 839
Non-current
Asset finance lease liabilities 616 735
Right of use asset lease liabilities 1,088 1,302
1,704 2,037
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 prior 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 £851,000 (2022: £837,000). The increase was due to finance
charges being allocated to a rent-free period.
For right of use assets, with the exception of short-term leases and leases of
low-value underlying assets, each lease is reflected on the balance sheet as a
right-of-use asset and a lease liability.
The Group classifies its right-of-use assets in a consistent manner to its
property, plant and equipment. Each lease generally imposes a restriction
that, unless there is a contractual right for the Group to sublet the asset to
another party, the right-of-use asset can only be used by the Group. Leases
are either non-cancellable or may only be cancelled by incurring a substantive
termination fee. Some leases contain an option to extend the lease for a
further term. The Group is prohibited from selling or pledging the underlying
leased assets as security.
For leases over office buildings and factory premises the Group must keep
those properties in a good state of repair and return the properties in their
original condition at the end of the lease. Further, the Group must insure
items of property, plant and equipment and incur maintenance fees on such
items in accordance with the lease contracts.
The lease liabilities are secured by the related underlying assets. Future
minimum lease payments at 30 September 2023 were as follows:
Within one Over one to
year five years Total
£'000 £'000 £'000
30 September 2023
Lease payments 827 2,141 2,968
Finance costs (130) (437) (567)
Net present value 697 1,704 2,401
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
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. Reconciliation of operating profit to operating cashflow
2023 2022
£'000 £'000
Adjusted Operating profit / (loss) 545 (2,624)
Adjustments for:
Depreciation of property, plant and equipment 1,544 1,678
Share option costs 71 122
Release of grants (20) (66)
Loss / (profit) on disposal of property, plant and equipment 170 (327)
Fixed asset write-offs 108 -
Movement in translation reserve 12 -
Changes in working capital:
Increase in inventories (1,003) (859)
Increase in trade and other receivables (53) (269)
(Decrease) / increase in trade and other payables (151) 4,132
Operating cashflow 1,223 1,787
12. Net Debt Reconciliation
Bank
Cash & Borrowings
Bank Leases Total
£'000 £'000 £'000 £'000
Cost
At 2 October 2021 3,217 (4,773) (3,355) (4,911)
Cash flows (1,434) - - (1.434)
Repayments - 2,366 1,260 3,626
New facilities - asset finance leases - - (1,025) (1,025)
Surrender - right of use leases - - 244 244
At 1 October 2022 1,783 (2,407) (2,876) (3,500)
Cash flows (838) - - (838)
Repayments - 1,500 989 2,489
New facilities - right of use leases - - (482) (482)
New facilities - right of use leases - - (32) (32)
At 30 September 2023 945 (907) (2,401) (2,363)
Notes to the consolidated financial statements (continued)
13. Subsequent events
On 24 October 2023, the Group announced its intention to divest the Precision
Machined Components division in order to strengthen the Group's balance sheet
and cash position and support strategic investment into Chesterfield Special
Cylinders.
On 14 November 2023, the Group exited its existing Revolving Credit Facility,
provided by Lloyds Banking Group, by arranging a new Term Loan facility of
£1.5 million with Rockwood Strategic plc and Peter Gyllenhammar AB, two of
its major shareholders. The new Term Loan is committed for a period of 5 years
and is secured against the assets of the Group. The new loan was drawn in full
and used to repay Lloyds in full, settle transaction costs and to provide
general working capital headroom.
In conjunction with the provision of the new Term Loan, Rockwood and
Gyllenhammar were issued with 1,933,358 warrants in aggregate (representing 5%
of the issued share capital) to subscribe for ordinary shares in the Company
at a price of 32 pence per share, representing a 20% premium to the closing
share price on 23 October 2023 (being the day prior to the announcement of the
new facility). The warrants may be exercised at any time in the 5 years
following drawdown of the new facility and continue to be exercisable in the
event the facility is repaid before its final expiry.
Rockwood Strategic plc is a quoted unit trust whose funds are managed by
Harwood Capital LLP, thereby placing it under the control of Richard Staveley,
a Non-Executive Director of the Company. Rockwood Strategic plc is therefore
considered to be a related party under "IAS 24 - Related Party Disclosures".
14. Prior period adjustment
During the year ended 1 October 2022 ("FY22"), 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 had 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. During FY22, it was noted that this accounting treatment was
not in compliance with IFRS 15, which requires that all costs incurred in the
period relating to the contract should be immediately expensed. Specifically,
the cost deferral historically adopted by the Group, to achieve a uniform
contract profit margin, was not permitted. As a result, the financial
statements for FY21 were restated with raw materials reduced by £625,000,
work-in-progress reduced by £429,000 and net assets reduced by £1,054,000.
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