Earnings Release • Dec 11, 2018
Earnings Release
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RNS Number : 0386K
Pressure Technologies PLC
11 December 2018
11 December 2018
Pressure Technologies plc
("Pressure Technologies" or the "Group")
2018 Full-Year Results
Pressure Technologies (AIM: PRES), the specialist engineering group, announces its full-year results for the year ended 29 September 2018.
Chris Walters, Chief Executive of Pressure Technologies, said:
"The Group is well placed to take advantage of improving market conditions and realise the benefits of investment in people, new equipment and supporting processes. Beyond the organic growth seen in our rising order book, increasing our capability, scale and reach through acquisitions remains a strategic focus."
Financial
● Revenue* of £32.2 million (2017: £34.6 million)
● Adjusted operating profit** at £0.5 million (2017: £1.6 million)
● Reported loss before tax of £(3.1) million (2017: £(1.4) million )
● Adjusted earnings per share* of 0.7p (2017: 10.0p)
● Reported basic loss per share* of (13.9)p (2017: (4.0)p)
● Adjusted net operating cash inflow*** £0.5 million (2017: £0.9 million)
● Closing net debt at £6.7 million (2017: £11.1 million )
* continuing operations
** Operating profit excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits.
***before cash outflow for exceptional costs
Operational
● Manufacturing revenue up 13% year on year with second-half 32% up on the first-half as the businesses experience an uplift in activity from core markets
● Precision Machined Components Division's closing order book up 54% on 2017, with highest intake levels in October 2018, since April 2014
● Completed sale of Hydratron, the Group's Engineered Products Division for £1.1 million initial consideration
● Post year-end conditional sale of the Alternative Energy Division for £11.1 million to a Canadian TSX Venture Exchange listed company
For further information, please contact:
| Pressure Technologies plc Chris Walters, Chief Executive Joanna Allen, Chief Financial Officer Keeley Clarke, Investor Relations |
Today Tel: 020 7920 3150 Thereafter, Tel: 0114 257 3622 www.pressuretechnologies.com |
| Cantor Fitzgerald Europe (Nominated Adviser and Broker) | Tel: 020 7894 7000 |
| Philip Davies / Will Goode | |
| Tavistock Simon Hudson |
Tel: 020 7920 3150 |
COMPANY DESCRIPTION
Company description - www.pressuretechnologies.com
With its head office in Sheffield, Pressure Technologies was founded on its leading market position as a designer and manufacturer of high-pressure components and systems serving the global energy, defence and industrial gases markets.
Precision Machined Components - www.pt-pmc.com
● Al-Met, Mid Glamorgan, acquired in 2010 www.almet.co.uk
● Roota Engineering, Rotherham, acquired in March 2014 www.roota.co.uk
● Quadscot, Glasgow, acquired in October 2014 www.quadscot.co.uk
● Martract Limited, Barton-on-Humber, acquired in December 2016 www.martract.co.uk
Cylinders
● Chesterfield Special Cylinders, Sheffield, IPO cornerstone in 2007 and includes, CSC Deutschland Gmbh, which is based in Dorsten, Germany and Chesterfield Special Cylinders Inc. which is based in Houston, USA www.chesterfieldcylinders.com
CHAIRMAN'S STATEMENT
Overview
It's fair to say that the much anticipated up-turn in the oil and gas industry took slightly longer to gain momentum than we had anticipated towards the end of last year. However, it's pleasing to report that the past few months have seen improved order intake trends and order book levels, supported by markedly higher bid activity throughout the Group.
As previously announced, John Hayward, CEO, stepped down from his role and Phil Cammerman, Non-Executive Director, retired during the year. Chris Walters was appointed as Chief Executive in September, bringing a wealth of experience in building successful global businesses and we look forward to him making a significant contribution in leading the Group.
Further substantiation of Chesterfield Special Cylinders' (CSC) market leadership was reinforced during the year when they became the only company from their peer group that managed to deliver unique, highly specialised cylinders for the Dreadnought Class of nuclear-powered submarines. The level of technical and manufacturing skills involved in such an undertaking is remarkable and it can only be offered from CSC - a company of master craftsmen!
During the past year, we have reviewed our portfolio of companies, with the view to refocusing our efforts on where we can achieve market leadership and deliver more predictable growth in sales and profits. In June, we announced the sale of Hydratron, which formed the Group's Engineered Products Division, for an initial cash consideration of £1.1 million, with an additional consideration of up to £2.25 million, which may become payable in cash, contingent on the company's future trading performance.
In the second-half of the year, focus turned to reviewing the strategic options for the Alternative Energy Division (AE) to realise the full potential of the Greenlane Biogas business in the expanding market for renewable natural gas (RNG), acknowledging that the nature of RNG development projects and plant installation contracts are no longer strategically compatible with the Group's focus on highly specialised manufacturing in oil and gas and defence markets.
We conducted a comprehensive review of divestment options, including an outright sale, a merger or a stock market listing. After generating positive interest in the business, the Board opted to proceed with a listing on the Canadian TSX Venture Exchange (TSX-V) as the most attractive approach, primarily due to deal deliverability, timing and value realisation. This option also allows the Group to retain a minority stake in the listed entity and benefit from the anticipated upside potential. I am pleased to report that on 10 December 2018, the Group announced it had commenced a process to spin out Greenlane and list it on the TSX-V, which will be accomplished by selling it to Creation Capital. We will remain a supportive minority shareholder and anticipate retaining our holding for the medium term. We anticipate this will conclude during the first quarter of 2019.
Results
Group revenue was £32.2m in the year, a 7% decline from last year, mostly as a result of lower turnover in AE. The turnover from our manufacturing divisions was up by 13%. Operating profits were modest at £0.5 million, however, returning a positive result on such low sales is clear evidence of the efforts taken in the past few years to align costs and improve operating efficiency.
The manufacturing divisions achieved returns on sales of between 11% and 13%, which is commendable in what were tough trading conditions in oil and gas. The AE Division recorded a small overall operating loss in the year, primarily due to low order intake in the first-half, but it was profitable throughout the second-half following its restructure.
The modest operating cash flow of £0.3 million reflects the phasing of large contract revenues around the year-end.
The Board has again resolved that no dividend shall be paid to shareholders this year as investment in the core manufacturing businesses remains the priority for capitalising on the improving markets conditions.
Outlook
Clearly, the opportunities for growth that we anticipated at the beginning of last year didn't materialise until later in the year. However, recent trading performance, order intake and general bidding activity indicates that we're seeing a period of increased market activity, particularly for oil and gas, so the Board expects a much better trading performance from the Group this year.
This increase in activity has been fuelled by greater confidence in the global oil and gas market, where most international oil companies have recently reported strong quarterly profits, which has in turn spurred a flurry of investment in capital projects. Time will tell whether these promising signs gather further momentum, in an environment where the USA Government is actively lobbying some of the world's largest crude oil producers to increase production in order to push prices down, thereby stimulating economic growth. This is an economic model that is more suited to heavily industrialised nations, but not for those who are reliant on oil revenues to fund domestic spending. The tensions are obvious.
When reflecting upon factors within the Board's control, the past year could be considered transformational, with the strategic divestment of two Divisions. Once the Greenlane Biogas deal has concluded, the Group will be in a stronger position to realise the efficiency benefits gained from recent restructuring and performance improvement measures, thereby capitalising on improving market conditions.
It is worth highlighting that the trading outlook for next year is much more encouraging, with year-end order books in our core manufacturing Divisions between 36-54% higher than at the same time last year.
The Board anticipates that funds generated from the portfolio rationalisation will provide the Group with a strengthened balance sheet, so we are actively looking at how we may be able to leverage that to accelerate growth in target markets.
Alan Wilson
Chairman
10 December 2018
CHIEF EXECUTIVE'S STATEMENT 2018
This is a very exciting time for the Group and I am delighted to join the team. During my first few weeks, I have met proud and committed colleagues in a business with unrivalled heritage and a leading reputation for craftsmanship and quality.
The past year was evidently an unpredictable and challenging one for the Group, but many positive steps have been taken to prepare the business for steadily improving conditions in our core markets. As momentum builds gradually in the oil and gas industry and our presence grows further in global defence markets, we have significantly strengthened our order book and have a clearer view of our customers' project pipeline today than at any point in the past three years.
Operational improvements and continued investment in our people, production capability and Group support underpin our confidence and our ability to realise the tremendous potential in our target markets. I am excited to be leading the Group and our valued colleagues into 2019 and beyond, building on our strong foundation and setting a clear vision for innovation, development and growth.
Performance
Overall Group revenue for the year was £32.2 million (2017: £34.6 million), down 7% as a result of fewer renewable energy projects. Revenue in our core Manufacturing Divisions increased by 13% to £21.2 million (2107: £18.8 million). Adjusted operating profit was £0.5 million (2017: £1.6 million), down as a result of operating losses in our Alternative Energy Division, mix-driven lower gross margins in manufacturing and investment in people and operating structure.
Oil and gas sector
| Revenue £ million | 2018 | 2017 | 2016 | 2015 |
| Group | 12.5 | 10.6 | 11.9 | 25.1 |
| PMC | 11.0* | 9.8 | 10.2 | 18.8 |
| Cylinders | 1.5 | 0.8 | 1.7 | 6.3 |
*casting anomaly due to rounding
Revenue from oil and gas sector customers increased 18% to £12.5 million (2017: £10.6 million) as activity in this sector made further gains over the low point in 2017, driven by increased order volumes in our Precision Machined Components Division (PMC) and the delivery of drillship air pressure vessels in our Cylinders Division. The recovery in oil and gas exploration and production activity has been unpredictable for the Group and our customers. We experienced a very slow third-quarter as our customers focused internally on planning and resourcing for increased project execution and procurement activity, generating a tendering surge in the fourth-quarter and pressure on lead times to meet project deadlines.
Throughout the downturn, gross margins in our PMC Division, which focuses primarily on this sector have remained above 30% and were 33% in 2018 (2017: 35%), with the cost impact of higher base material content and carbide coatings offsetting efficiency improvements from new equipment and processes. Margins in the year were also affected by new product development work with new and existing customers. These developments have extended our product range and delivered new revenue streams with strong margins. A total of 15 new customers contributed 8% of total PMC revenue in the year.
Defence sector
| Revenue £ million | 2018 | 2017 | 2016 | 2015 |
| Group | 6.6 | 6.4 | 6.5 | 7.5 |
| PMC | - | - | - | - |
| Cylinders | 6.6 | 6.4 | 6.5 | 7.5 |
Defence sector revenue increased slightly to £6.6 million (2017: £6.4 million). Delays to several key defence projects resulted in revenue being strongly weighted to the second-half of the year and slipping into 2019. Standard and bespoke cylinders for the Dreadnought submarine programme contributed significantly alongside the Type 26 frigate project, which was secured in the first-half of the year. Export naval revenue increased significantly, driven in particular by successful projects in South Korea.
Integrity management revenue increased 21% to £0.8 million (2017: £0.7 million) as activity for the UK naval support contract ramped up, having been delayed from the first-half of the year.
Driven by defence project revenues, overall gross margin in our Cylinders Division, which focuses primarily on this sector, remained strong at 35%, but fell below the 41% peak of 2017 due to a reduced volume of high-margin aerospace orders, product development work and increased direct labour costs.
Industrial gas sector
| Revenue £ million | 2018 | 2017 | 2016 | 2015 |
| Group | 2.0 | 1.7 | 1.3 | 0.6 |
| PMC | 0.3* | 0.5 | - | - |
| Cylinders | 1.7 | 1.2 | 1.3 | 0.6 |
*casting anomaly due to rounding
Revenue increased 16% in this sector, driven by favourable phasing of cyclical refurbishment work for our largest customer off-setting the lower volume in this sector from PMC in the year.
Renewable energy sector
| Revenue £ million | 2018 | 2017 | 2016 | 2015 |
| Group | 11.1 | 15.9 | 11.3 | 14.0 |
| AE | 11.1 | 15.8 | 11.3 | 14.0 |
| Cylinders | - | 0.1 | - | - |
Alternative Energy Division (AE) projects dominated Group performance in this sector, with £11.1 million overall for the year (2017: £15.8 million) and a second-half revenue of £8.3 million, as work started on three projects secured earlier in the year.
Overall revenue was adversely impacted in the UK by delays in the Renewable Heat Incentive amendments, complexity and client funding arrangement delays on contract awards in the Americas and the disruption to commercial activity experienced through Divisional restructuring throughout the prior year. However, overall gross margin improved to 22% (2017: 17%) as a direct result of this restructuring.
People
The success of the Group comes from our people. Our performance and our reputation are achieved through their skills, experience and relationships, through their hard work and from the way they collaborate with colleagues and with our customers.
I am personally committed to ensure all colleagues have a safe place to work, where we also positively support their health and well-being. We have further strengthened HSE management across the Group with new roles in our operational sites, supporting more focused workplace risk assessment and performance reporting. A new working group is evaluating improvements to the way we support health and well-being across the Group, with the aim of promoting a positive working environment and fulfilment for existing and prospective colleagues and enhancing our employer brand.
Recruitment to meet the growing workload and new skill requirements has progressed successfully, building on our 230-strong workforce. Several former colleagues who left the business during the downturn have re-joined us and we have invested further in apprenticeships across the Group.
Earlier this year, we carried out a Group-wide engagement survey to objectively gather views from our colleagues on how they feel about a range of factors related to working within the Group. Overall, the results were positive, showing a high degree of colleague engagement and a strong sense of pride in the companies they work for. The survey also identified areas for improvement, which has helped focus management priorities throughout the year.
We recently launched a Group management development programme, bringing directors, managers and supervisors together for a tailored course, focusing on key skills and knowledge of employment legislation and giving our management teams a practical toolkit for best practice in people management.
Further progress has been made with standardising our people management policies and guidelines, giving our managers and staff access to an efficient and supportive centralised resource, improving compliance and consistency across the Group. We also completed an extensive programme of work to bring the Group into compliance with GDPR requirements.
Finally, on people, I would like to thank John Hayward, my predecessor for his time and support during our handover. I very much enjoyed working with John, under whose leadership the Group has been built on core values of honesty and integrity. These values are clearly evident across the business and remain fundamental to everything we do.
Strategy and Outlook
The Group is well placed to take advantage of improving market conditions and realise the benefits of investment in people, new equipment and supporting processes.
Precision Machined Components Division
Delivery of high-quality, safety-critical components for the oil and gas industry remains the predominant focus for PMC in the medium-term, where our expertise is increasingly well recognised and respected. Oil and gas market commentators and our key customers remain cautiously optimistic about the continuing growth in international exploration and production investment, with many major projects due to commence in 2020.
Tendering activity increased sharply towards the end of the year and has continued to rise. The closing order book in September 2018 was 54% up on the same period in 2017, with 14% of the total order book coming from new customers secured through 2018. The Divisional order intake reached its highest level in October 2018 for over four years, with a rolling 12-month order intake 24% higher than at the same time in 2017.
Investment in people to manage our existing customers and drive new product and new customer opportunities in target areas has helped improve our responsiveness and success rates. Closer customer relationships have given us greater visibility of new leads, helping to inform load and capacity planning within our production teams.
Our capex investment programme will accelerate through 2019, further equipping the Division with the very latest high-performance machining centres that allow us to support a widening range of products for our customers, as they seek to consolidate their approved supplier lists and to value-engineer their designs with our input.
Margin improvement remains a focus, supported by further investment in skills and training, the development of innovative manufacturing processes and more effective management of our supply chain and subcontracted services.
Beyond the organic growth seen in our rising order book, increasing our capability, scale and reach through acquisitions remains a strategic focus. Recent standardisation of operating models and experience gained through effective collaboration between our individual brands has helped blueprint an effective Group approach to future acquisitions of highly specialised, niche manufacturing operations in target markets.
Cylinders Division
Our Cylinders Divisional strategy remains firmly on course to achieve greater inroads in target markets.
The diversification into global defence markets from 2014 has proved highly successful, strengthened by the opening of our German office and the development of key relationships and opportunities in new regions. This sector remains the organic growth focus for the foreseeable future with strong potential to replicate the success seen with the Royal Navy across NATO-friendly navies worldwide.
In the UK, submarine and surface warship build programmes remain largely unaffected by cuts in defence spending and we are established suppliers to the extensive Dreadnought submarine and Type 26 frigate projects, with order book visibility to 2023 and project horizons out to at least 2030.
Defence budgets in the US remain robust and our local team continue to drive the qualification of our products, while managing key relationships in US army, navy and air force departments. Our rapid response in providing a solution for the USAF F-22 Raptor has helped promote our reputation in this target market.
Our Integrity Management services have established a strong presence and an enviable reputation in the UK defence market with the in-service submarine programme. This business has tremendous potential for growth outside the UK and Europe and is a focus area for accelerated development.
Strategically we are channelling efforts through our German office to promote safety-critical Integrity Management services to navies worldwide.
In oil and gas markets, we are well positioned to respond to a predicted upturn in drillship and semi-submersible projects from 2020. It is notable that the Cylinders Division recently delivered the only two major air pressure vessel supply contracts awarded globally in this sector and is the 'go to' supplier as the upturn approaches. Customer relationships remain strong and our investment in product R&D continues, keeping us at the forefront of this sector.
As the focus on renewable energy usage grows globally, we are set to build on our breakthrough order in 2018 for the supply of hydrogen refuelling station cylinders in the UK. We recently secured a second major European order and are well positioned with our tendering partners to win further contracts. There are several target customers in the European hydrogen market and we are well positioned as a key supplier, partner and service provider, offering technical advice and support from the very early stages of project development. There are significant growth opportunities for large, high-pressure cylinders in this market as hydrogen power plays an increasing role in mass transport systems worldwide.
Further investment in new technology to advance our production, handling and finishing processes is underway, bringing improved efficiency and reliability. We are also working with academic partners to evaluate innovative production methods for our ultra-large cylinders and assessing improvements to supply chain management for materials and subcontracted services.
Alternative Energy
The global outlook for renewable natural gas (RNG) has improved again throughout the year with governments and energy majors increasing their commitment to renewables in the global energy mix, with RNG playing a significant role, particularly in the US and Europe.
Significant progress has been made in forming relationships with project developers, grid operators and energy majors in these key regions and our strategic decision to centre the Division in Vancouver positions Greenlane Biogas perfectly to take advantage of new opportunities. With a closing order book of £7m and a £30m pipeline of high-probability opportunities for order placement in 2019, the potential for Greenlane in this growing sector appears to be very strong.
In June 2018, we announced that strategic options would be evaluated for our Alternative Energy Division and Greenlane Biogas that would help unlock value for our shareholders and refocus the Group on core specialist manufacturing activities in defence and oil and gas markets.
As a result of this strategic review and following the appraisal of outright sale and merger options, we have commenced a process to list Greenlane Biogas on the TSX-V. We will remain a supportive minority shareholder and anticipate retaining our holding for the medium term.
Chris Walters
Chief Executive
10 December 2018
CHIEF FINANCIAL OFFICER'S REPORT 2018
Highlights
| Group Revenue* down 7% to £32.2m (2017: £34.6m) |
Manufacturing Revenue* up 13% to £21.2m (2017: 18.8m) |
Adjusted operating Profit** £0.5m (2017: 1.6m) |
Return on Revenue*** 2% (2017: 5%) |
| Net operating cash inflow**** £0.5m (2017: £0.9m) |
Closing Net Debt £6.7m (2017: £11.1m) |
Fundraising of £4.8m |
R&D tax credit benefits as a % of revenue of 2.5% (2017: 1.5%) |
* continuing operations only
** operating profit excluding acquisition costs, amortisation on acquired businesses and exceptional charges and credits.
*** adjusted operating profit divided by revenue
****before cash outflow for exceptional costs
I am pleased to present the results of what has been another very busy and transitional year for the Group. We have continued to shape the finance teams to focus on business insight and real-time analysis to support commercial decision making, investing in systems and processes to facilitate this, whilst continuously improving the efficiency of financial reporting.
Following the disposal of the entire issued share capital of Hydratron Limited all results and costs for the Engineered Products Division have been presented as discontinued operations, commentary is in respect of continuing operations.
The continuing Manufacturing Divisions are experiencing an uplift in activity with revenues from these Divisions 13% up on the prior year. Second-half was particularly strong, 32% up on the first-half reflecting both the momentum of work in the oil and gas sector and phasing of large defence projects.
Alternative Energy also had a stronger second-half returning an adjusted operating profit of £0.4 million. Four new biogas upgrader projects were awarded and commenced in the year. Non-upgrader sales for after-market support and other products decreased to £2.2 million (2017: £3.2 million). Whist revenue has reduced significantly to £11.1 million in 2018 (2017: £15.8 million), profitability in this Division has continued to improve, gross profit margin has increased by 5ppt to 22% in the year.
Across the Group, we have continued to invest in new equipment and technology. £1.1 million in new plant and machinery has been invested in the Manufacturing Divisions. A further £0.4 million has been invested in IT systems and technology, predominantly to support the AE Division. The R&D tax credit relief has increased with claims in 2018 expected to be in excess of 2.5% of revenue (2017: 1.5%).
In the short-term, the financial priorities continue to focus on the reduction in net debt with working capital management at the fore, whilst investing in new equipment, using efficient finance arrangements where applicable, and maximising available tax credits reflecting the focus on innovation. Debtor days have reduced to 53 (2017: 61) reflecting the continued focus on key account management and mix of customer balances at the year-end. This, along with the phasing of contract revenues, has resulted in a small net investment in working capital for continuing operations in 2018 of £0.2 million (2016: £1.5 million).
The oversubscribed share placing in November 2017 and the disposal of the EP Division in June 2018, both immediately reduced net debt which closed at £6.7 million (2017: £11.1 million) and this positions the Group well to capitalise on the clear momentum in market opportunity being experienced in the Manufacturing Divisions.
Trading result
Manufacturing
The Manufacturing Divisions contributed £2.6 million of adjusted operating profit in 2018 (2017: £2.9 million), whilst the volume of work increased year-on-year the mix of work delivered was at an overall lower gross margin which has reduced return on revenue. Administrative costs remained at 22% of revenue due to the strategic investment in people and skills in readiness for anticipated workload in 2019 and beyond.
Alternative Energy
The benefits of the restructuring in 2017 are visible in Gross Margin improvement with 2018 seeing a 5ppt increase to 22% (2017: 17%). The revenue in the first-half of £2.8 million (2017: 8.0 million) was adversely impacted by the restructuring in 2017 but recovered in the second-half to £8.3 million (2017: 7.8 million) and the Division was profitable with a Return on Revenue of 5% in this half.
Central Costs
Unallocated central costs (before M&A, amortisation on acquired businesses and exceptional charges) were £1.6 million (2017: £1.4 million).
In respect of the Group's various share option plans there was a net nil share based payment cost in the year (2017: £0.1 million).
Exceptional items
Reorganisation and redundancy costs in the year were £0.3 million (2017: £0.7 million), which predominantly relate to the final parts of the Alternative Energy Division restructuring.
On 21 July 2018, John Hayward informed the Board of his decision to retire as Chief Executive Officer. John subsequently stepped down from the Board, with effect from 1 October 2018. CEO retirement costs include payment in lieu of contractual notice (£216,000) with the balance being settlement costs.
M&A related exceptional items and amortisation costs were £2.6 million (2017: £2.0 million). The prior year included the £0.6 million write-back of the deferred consideration of Martract Limited.
Taxation
The tax credit for the year was £0.6 million (2017: £0.8 million).
The loss before tax, effect of the change in tax rates in the year and adjustments in respect of prior years have all contributed to the significant credit in the 2018. The applicable current tax rate for the year is 19% (2017: 19.5%). The reduction in rate of tax and the utilisation of losses have resulted in a lower effective tax rate than the current rate of tax.
R&D tax benefits in respect of 2018 are projected to be around £0.8 million (2017: £0.5 million).
Corporation tax paid in the year totalled £0.1 million (2017: refund £0.2 million), which relates to the UK. Tax in overseas territories is minimal.
Foreign Exchange
The Group has exposure to movements in foreign exchange rates related to both transactional trading and translation of overseas investments.
In the year under review, the principal exposure which arose from trading activities, was to movements in the value of the Euro, the CA Dollar and the US Dollar relative to Sterling. As the Group companies both buy and sell in overseas currencies, particularly the Euro and the US Dollar, there is a degree of natural hedge already in place.
In the AE Division the currency exposure is actively managed at the outset of a project where possible matching the contract currency with the contracts costs. Where appropriate forward contracts taken out to cover the residual exposure. Exposure (both translational and transactional) to the movements in the USD versus the CAD and GBP are expected to increase as the focus of the AE Division turns to this market.
In 2018 the net gain recognised in adjusted operating profit in respect of realised and unrealised transactions in Euro, US Dollar, Canadian Dollar and New Zealand Dollar was £0.1 million (2018: immaterial) . In 2018 a loss of £0.1 million (2017: immaterial) was recorded below adjusted operating profit in respect of the retranslation of foreign operations.
As at 29 September 2018 there were no forward contracts in place (2017: none).
At the present time no cover is held against the value of overseas investments or intercompany loans with overseas entities as over the next year dividend flows from these to Group are not expected to be significant.
Disposal of Hydratron
On 7 June 2018, the Group completed the disposal of the entire issued share capital of its subsidiary, Hydratron Limited, to Pryme Group Limited, majority owned by Simmons Private Equity LP. This business was reported by the Group as the Engineered Products Division.
The initial consideration was £1.1 million (less costs and retentions), along with potential deferred contingent consideration up to a maximum of £2.25m, dependent on revenue in the twelve months post completion. As detailed in Note 5 to these financial statements a goodwill impairment of £1.7 million was recognised as a charge in the period ended 29 September 2018.
The £2.6 million loss from discontinued operations comprise the operating loss for the period up to disposal, costs to sell and impairment charges associated with the business.
Financing, cash flow and leverage
Operating cash inflow for continuing operations before movements in working capital and reorganisation and redundancy costs was £1.8 million (2017: £2.5 million). After a net working capital inflow of £0.2 million (2017: net investment £1.5 million), cash generated from operations was £2.0 million (2017: £0.9 million). The change in working capital arose from the timing of large contract down payments and phasing of contract revenues in Cylinders and AE Divisions.
Cash outflow in respect of discontinued operations trading up to the point of disposal was £0.4 million.
Cash outflow in respect of exceptional costs was £1.3 million (2017: £0.8 million).
Cash inflows in respect of the disposal of EP was £1.1 million. Capital expenditure on plant and machinery was £1.1 million, of which £0.6 million was in the PMC Division and £0.4 million in the Cylinders Division. Where appropriate new machines are now acquired using dedicated equipment finance and these assets are then self-financing through trading cash inflow, in 2018 £0.5 million of new finance leases were utilised. £1.1 million (2017: £0.9 million) of the net debt relates to finance leases in respect of plant and machinery.
Net debt was £6.7 million (2017: £11.1 million), the decrease driven primarily by the share issue and disposal of the EP Division. The Group's £15 million revolving credit facility ("RCF") was £11.8 million drawn at the year-end.
The increase in adjusted EBITDA and reduction in net debt means the Net Debt to Adjusted EBITDA leverage ratio in respect of the RCF facility reduced to 2.3:1 at 29 September 2018 (2017: 3.1:1). All facility covenants have been complied with throughout the period and the facility has been extended to January 2020.
Earnings per share and dividends
Adjusted earnings per share decreased to 0.7 pence (2017: 10.0 pence) for continuing operations. Basic loss per share was (13.9) pence (2017: (4.0) loss per share) for continuing operations.
No dividends were paid in the year (2017: nil) and no dividends have been declared in respect of the year ended 29 September 2018 (2017: nil). Distributable reserves in the parent company decreased 23% to £16.9 million (2017: £22.1 million), driven primarily by the disposal of Hydratron Limited.
Statement of financial position
Goodwill and intangible assets (at cost) decreased by £2.1 million to £35.8 million (2017: £37.9 million). £2.5 million related to the disposal of EP, the balance was investment in new product development and investment in IT systems. Amortisation in the year was £2.6 million (2017: £2.4 million).
Net current assets increased to £9.6 million (2017: £9.1 million). This increase is predominantly due to an increase in cash and the phasing of large contract balances between years.
Non-current liabilities decreased to £14.4 million (2017: £18.0 million) after borrowings reduced to £12.6 million (2017: £15.6 million).
Net assets decreased by 1.2% to £33.4 million (2017: £33.8 million) and net asset value per share decreased to 180 pence (2017: 233 pence) due to the dilutive impact of the share placing.
Joanna Allen
Chief Financial Officer
10 December 2018
For the 52 week period ended 29 September 2018
| Notes | 52 weeks ended 29 September 2018 |
52 weeks ended 30 September 2017 |
|
| £'000 | £'000 | ||
| Revenue | 1 | 32,245 | 34,557 |
| Cost of sales | (22,605) | (24,851) | |
| Gross profit | 9,640 | 9,706 | |
| Administration expenses | (9,093) | (8,137) | |
| Operating profit before M&A costs, amortisation and exceptional charges and credits | 1 | 547 | 1,569 |
| Separately disclosed items of administrative expenses: | |||
| Amortisation and M&A related exceptional items | 3 | (2,584) | (1,968) |
| Other exceptional charges and credits | 4 | (688) | (667) |
| Operating loss | (2,725) | (1,066) | |
| Finance income | 6 | 4 | |
| Finance costs | (400) | (343) | |
| Loss before taxation | 2 | (3,119) | (1,405) |
| Taxation | 6 | 589 | 823 |
| Loss for the period from continuing operations | (2,530) | (582) | |
| Discontinued operations | |||
| Loss for the period from discontinued operations | 5 | (2,558) | (565) |
| Loss for the period attributable to owners of the parent | (5,088) | (1,147) | |
| Other comprehensive income Items that may be reclassified subsequently to profit or loss: Currency translation differences on translation of foreign operations |
(60) | (4) | |
| Total comprehensive income for the period attributable to the owners of the parent |
(5,148) | (1,151) | |
| Basic earnings per share | |||
| From continuing operation | 7 | (13.9)p | (4.0)p |
| From discontinued operations | 7 | (14.1)p | (3.9)p |
| From loss for the period | (28.0)p | (7.9)p | |
| Diluted earnings per share | |||
| From continuing operation | 7 | (13.9)p | (4.0)p |
| From discontinued operations | 7 | (14.1)p | (3.9)p |
| From loss for the period | (28.0)p | (7.9)p |
CONSOLIDATED BALANCE SHEET
As at 29 September 2018
| Notes | 29 September 2018 | 30 September 2017 | |
| £'000 | £'000 | ||
| Non-current assets | |||
| Goodwill | 9 | 14,370 | 16,062 |
| Intangible assets | 10 | 11,444 | 13,658 |
| Property, plant and equipment | 12,032 | 12,583 | |
| Deferred tax asset | 15 | 402 | 343 |
| 38,248 | 42,646 | ||
| Current assets | |||
| Inventories | 4,383 | 4,986 | |
| Trade and other receivables | 11 | 11,998 | 11,339 |
| Cash and cash equivalents | 6,140 | 4,791 | |
| Current tax | 35 | - | |
| 22,556 | 21,116 | ||
| Total assets | 60,804 | 63,762 | |
| Current liabilities | |||
| Trade and other payables | 12 | (12,745) | (11,748) |
| Borrowings | 13 | (241) | (219) |
| Current tax liabilities | - | (23) | |
| (12,986) | (11,990) | ||
| Non-current liabilities | |||
| Other payables | 12 | (198) | (238) |
| Borrowings | 13 | (12,636) | (15,642) |
| Deferred tax liabilities | 15 | (1,591) | (2,089) |
| (14,425) | (17,969) | ||
| Total liabilities | (27,411) | (29,959) | |
| Net assets | 33,393 | 33,803 | |
| Equity | |||
| Share capital | 930 | 725 | |
| Share premium account | 26,172 | 21,637 | |
| Translation reserve | (465) | (405) | |
| Retained earnings | 6,756 | 11,846 | |
| Total equity | 33,393 | 33,803 | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 52 week period ended 29 September 2018
| Notes | Share capital |
Share premium account |
Translation reserve | Profit and loss account |
Total equity |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Balance at 02 October 2016 | 724 | 21,620 | (401) | 12,872 | 34,815 | |
| Share based payments | - | - | - | 121 | 121 | |
| Shares issued | 1 | 17 | - | - | 18 | |
| Transactions with owners | 1 | 17 | - | 121 | 139 | |
| Loss for the period | - | - | - | (1,147) | (1,147) | |
| Other comprehensive income: Exchange differences on translating foreign operations |
- | - | (4) | - | (4) | |
| Total comprehensive income | - | - | (4) | (1,147) | (1,151) | |
| Balance at 30 September 2017 | 725 | 21,637 | (405) | 11,846 | 33,803 | |
| Share based payments | - | - | - | (2) | (2) | |
| Shares issued | 205 | 4,535 | - | - | 4,740 | |
| Transactions with owners | 205 | 4,535 | - | (2) | 4,738 | |
| Loss for the period | - | - | - | (5,088) | (5,088) | |
| Other comprehensive income: Exchange differences on translating foreign operations |
- | - | (60) | - | (60) | |
| Total comprehensive income | - | - | (60) | (5,088) | (5,148) | |
| Balance at 29 September 2018 | 930 | 26,172 | (465) | 6,756 | 33,393 | |
For the 52 week period ended 29 September 2018
| Notes | 52 weeks ended 29 September 2018 |
52 weeks ended 30 September 2017 |
|
| £'000 | £'000 | ||
| Operating activities | |||
| Cash flows from operating activities | 16 | 291 | 319 |
| Finance costs paid | (394) | (324) | |
| Income tax (paid) / refund | (56) | 216 | |
| Net cash inflow from operating activities | (159) | 211 | |
| Investing activities | |||
| Proceeds from sale of fixed assets | 127 | 21 | |
| Purchase of property, plant and equipment | (1,009) | (961) | |
| Cash outflow on purchase of subsidiaries net of cash acquired | - | (3,597) | |
| Cash inflow on disposal of subsidiaries net of cash disposed of | 1,088 | - | |
| Net cash used in investing activities | 206 | (4,537) | |
| Financing activities | |||
| New borrowings | - | 3,350 | |
| Repayment of borrowings | (3,438) | (324) | |
| Shares issued | 4,740 | 18 | |
| Net cash from financing activities | 1,302 | 3,044 | |
| Net increase / (decrease) in cash and cash equivalents | 1,349 | (1,282) | |
| Cash and cash equivalents at beginning of period | 4,791 | 6,073 | |
| Cash and cash equivalents at end of period | 6,140 | 4,791 | |
Basis of preparation
The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 of the Companies Act 2006. It has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) adopted for use in the European Union, including IFRIC interpretations issued by the International Accounting Standards Board, and in accordance with the AIM rules and is not therefore in full compliance with IFRS. The principal accounting policies of the Group have remained unchanged from those set out in the Group's 2017 annual report. The financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are carried at fair value.
The financial information for the period ended 29 September 2018 was approved by the Board on 10 December 2018 and has been extracted from the Group's financial statements upon which the auditor's opinion is unmodified and does not include a statement under section 498(2) or (3) of the Companies Act 2006.
The statutory accounts for the period ended 29 September 2018 will be posted to shareholders at least 21 days before the Annual General Meeting and made available on our website www.pressuretechnologies.com. In due course, they will be delivered to the Registrar of Companies. The statutory accounts for the period ended 30 September 2017 have been delivered to the Registrar of Companies.
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). The Manufacturing and Alternative Energy divisions are distinct due to the nature of the underlying businesses and as such are grouped on that basis.
For the 52 week period ended 29 September 2018
| Cylinders | Precision Machined Components | Manufacturing sub total |
Alternative Energy |
Central costs | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Revenue | ||||||
| - total | 9,942 | 11,551 | 21,493 | 11,078 | - | 32,571 |
| - revenue from other segments | - | (83) | (83) | - | - | (83) |
| - intra segment revenue from discontinued operations | - | (243) | (243) | - | - | (243) |
| Revenue from external customers | 9,942 | 11,225 | 21,167 | 11,078 | - | 32,245 |
| Gross Profit | 3,511 | 3,694 | 7,205 | 2,405 | 30 | 9,640 |
| Operating profit / (loss) before M&A costs, amortisation and exceptional charges and credits | 1,099 | 1,501 | 2,600 | (502) | (1,551) | 547 |
| Amortisation and M&A related exceptional items | - | (1,741) | (1,741) | (768) | (75) | (2,584) |
| Other exceptional charges | (27) | (60) | (87) | (177) | (424) | (688) |
| Operating profit / (loss) | 1,072 | (300) | 772 | (1,447) | (2,050) | (2,725) |
| Net finance (costs) / income | (15) | (8) | (23) | 6 | (377) | (394) |
| Profit / (loss) before tax | 1,057 | (308) | 749 | (1,441) | (2,427) | (3,119) |
| Segmental net assets * | 6,392 | 54,254 | 60,646 | 11,792 | (39,045) | 33,393 |
| Other segment information: | ||||||
| Capital expenditure | 410 | 600 | 1,010 | 65 | 18 | 1,093 |
| Depreciation | 473 | 635 | 1,108 | 72 | 125 | 1,305 |
| Amortisation | - | 1,741 | 1,741 | 768 | 75 | 2,584 |
1. Segment analysis (continued)
| Cylinders | Precision Machined Components | Manufacturing sub total |
Alternative Energy |
Central costs | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Revenue | ||||||
| - total | 8,403 | 10,703 | 19,106 | 15,800 | - | 34,906 |
| - revenue from other segments | - | (79) | (79) | - | - | (79) |
| - intra segment revenue from discontinued operations | - | (270) | (270) | - | - | (270) |
| Revenue from external customers | 8,403 | 10,354 | 18,757 | 15,800 | - | 34,557 |
| Gross Profit | 3,408 | 3,591 | 6,999 | 2,731 | (24) | 9,706 |
| Operating profit / (loss) before M&A costs, amortisation and exceptional charges and credits | 1,062 | 1,840 | 2,902 | 3 | (1,336) | 1,569 |
| Amortisation and M&A related exceptional items | - | (1,691) | (1,691) | (708) | 431 | (1,968) |
| Other exceptional charges | (34) | (57) | (91) | (413) | (163) | (667) |
| Operating profit / (loss) | 1,028 | 92 | 1,120 | (1,118) | (1,068) | (1,066) |
| Net finance (costs) / income | (9) | (6) | (15) | 4 | (328) | (339) |
| Profit / (loss) before tax | 1,019 | 86 | 1,105 | (1,114) | (1,396) | (1,405) |
| Segmental net assets * | 6,271 | 24,370 | 30,641 | 14,736 | (14,100) | 31,277 |
| Other segment information: | ||||||
| Capital expenditure | (37) | 166 | 129 | 72 | 68 | 269 |
| Depreciation | 403 | 700 | 1,103 | 105 | 122 | 1,330 |
| Amortisation | - | 1,691 | 1,691 | 708 | 8 | 2,407 |
The following table provides an analysis of the Group's revenue by geographical destination.
| Revenue | 2018 | 2017 |
| £'000 | £'000 | |
| United Kingdom | 13,329 | 13,197 |
| Europe | 6,430 | 6,935 |
| Rest of the World | 12,486 | 14,425 |
| 32,245 | 34,557 | |
1. Segment analysis (continued)
The Group's largest customer contributed 9% to the Group's revenue (2017: 12%) and is reported within the Alternative Energy segment.
The following table provides an analysis of the Group's revenue by market.
| Revenue | 2018 | 2017 |
| £'000 | £'000 | |
| Oil and gas | 12,477 | 10,608 |
| Defence | 6,620 | 6,404 |
| Industrial gases | 2,019 | 1,745 |
| Alternative energy | 11,129 | 15,800 |
| 32,245 | 34,557 | |
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.
| Revenue | 2018 | 2017 |
| £'000 | £'000 | |
| Sale of goods | 28,213 | 30,694 |
| Rendering of services | 4,032 | 3,863 |
| Total sales - continuing operations | 32,245 | 34,557 |
The following table provides an analysis of the carrying amount of non-current assets and additions to property, plant and equipment.
| 2018 | 2017 | |||||||
| United Kingdom | Rest of the World |
Total | United Kingdom | Rest of the World |
Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Non-current assets | 38,194 | 54 | 38,248 | 42,594 | 52 | 42,646 | ||
| Additions to property, plant and equipment | 1,030 | 63 | 1,093 | 240 | 52 | 292 |
Loss before taxation is stated after charging / (crediting):
| 2018 | 2017 | |
| £'000 | £'000 | |
| Depreciation of property, plant and equipment - owned assets | 1,318 | 1,382 |
| Depreciation of property, plant and equipment - assets under finance lease and hire purchase agreements | 60 | 56 |
| (Profit)/Loss on disposal of fixed assets | (69) | 21 |
| Amortisation of intangible assets acquired on business combinations | 2,584 | 2,407 |
| Amortisation of grants receivable | (86) | (94) |
| Staff costs - excluding share based payments | 12,031 | 11,058 |
| Cost of inventories recognised as an expense | 17,420 | 21,418 |
| Operating lease rentals: | ||
| - Land and buildings | 306 | 353 |
| - Machinery and equipment | 86 | 89 |
| Foreign currency (gain)/loss | (102) | 37 |
| Share based payments | (2) | 121 |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Amortisation of intangible assets | (2,584) | (2,407) |
| M&A costs | - | (158) |
| Deferred consideration write back | - | 597 |
| (2,584) | (1,968) | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Reorganisation and redundancy | (333) | (674) |
| CEO retirement costs | (346) | - |
| Costs in relation to HSE investigation | (9) | (21) |
| Write back of KGTM loan previously provided for | - | 28 |
| (688) | (667) | |
On 21 July 2018, John Hayward informed the Board of his decision to retire as Chief Executive Officer. John subsequently stepped down from the Board, with effect from 1 October 2018. CEO retirement costs include payment in lieu of contractual notice (£216,000) with the balance being settlement costs.
The write back of KGTM loan previously provided for, related to a receipt from KGTM for a loan amount that was previously provided for (reversal of the provision).
| 2018 | 2017 | |
| £'000 | £'000 | |
| Revenue | 2,375 | 3,861 |
| Expenses | (2,623) | (4,333) |
| _______ | _______ | |
| Operating Profit pre-exceptional costs | (248) | (472) |
| Exceptional costs: | ||
| Reorganisation and redundancy | (15) | (36) |
| Costs to sell | (457) | - |
| Loss after tax on disposal (Note 17) | (114) | - |
| Goodwill impairment | (1,692) | - |
| _______ | _______ | |
| Loss before taxation | (2,526) | (508) |
| Taxation | (32) | (57) |
| _______ | _______ | |
| Loss for the year | (2,558) | (565) |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Cash flows from discontinued operations | ||
| Net cash used in operating activities | (481) | (527) |
| Net cash from investing activities | - | (25) |
| Net cash from financing activities | 290 | 726 |
| _______ | _______ | |
| Net cash flows for the year | (191) | 174 |
| 2018 | 2018 | 2018 | 2017 | 2017 | 2017 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Continuing | Discontinued | Total | Continuing | Discontinued | Total | |
| Current tax (credit)/expense | ||||||
| Current tax | - | - | - | - | - | - |
| Over provision in respect of prior years | - | - | - | (336) | (69) | (405) |
| Foreign tax | - | - | - | 49 | - | 49 |
| - | - | - | (287) | (69) | (356) | |
| Deferred tax (credit)/expense | ||||||
| Origination and reversal of temporary differences | (524) | - | (524) | (527) | (7) | (534) |
| Deferred tax assets no longer recognised | 20 | 32 | 52 | - | - | - |
| Over provision in respect of prior years | (85) | - | (85) | (9) | 133 | 124 |
| (589) | 32 | (557) | (536) | 126 | (410) | |
| Total taxation credit | (589) | 32 | (557) | (823) | 57 | (766) |
Corporation tax is calculated at 19% (2017: 19.5%) of the estimated assessable profit for the period. Deferred tax is calculated at the rate applicable when the temporary differences unwind.
The charge for the period can be reconciled to the profit per the consolidated statement of comprehensive income as follows:
| 2018 £'000 |
2018 £'000 |
2018 £'000 |
2017 £'000 |
2017 £'000 |
2017 £'000 |
|
| Continuing | Discontinued | Total | Continuing | Discontinued | Total | |
| Loss before taxation | (3,119) | (2,526) | (5,645) | (1,405) | (508) | (1,913) |
| Theoretical tax at UK corporation tax rate 19% (2017: 19.5%) | (593) | (480) | (1,073) | (274) | (99) | (373) |
| Effect of (credits) / charges: | ||||||
| - non-deductible expenses and other timing differences | 269 | 321 | 590 | 190 | 14 | 204 |
| - disallowable release of deferred consideration | - | - | - | (113) | - | (113) |
| - other disallowable acquisition costs | - | - | - | (49) | - | (49) |
| - research and development allowance | (68) | - | (68) | - | - | - |
| - adjustments in respect of prior years | (85) | - | (85) | (351) | 70 | (281) |
| - effect of unrealised losses on discontinued operations | (108) | 159 | 51 | (72) | 72 | - |
| - change in taxation rates | (5) | - | (5) | (2) | - | (2) |
| - differences in corporation tax rates | 54 | - | 54 | (68) | - | (68) |
| - losses not previously recognised now utilised | (73) | - | (73) | (84) | - | (84) |
| - deferred tax assets no longer recognised | 20 | 32 | 52 | - | - | - |
| Total taxation credit | (589) | 32 | (557) | (823) | 57 | (766) |
The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The adjusted earnings per share is also calculated based on the basic weighted average number of shares.
The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.
For the 52 week period ended 29 September 2018
| Continuing £'000 |
Discontinued £'000 |
Total £'000 |
|
| Loss after tax | (2,530) | (2,558) | (5,088) |
| No. | |||
| Weighted average number of shares - basic | 18,178,407 | ||
| Dilutive effect of share options | 17,944 | ||
| Weighted average number of shares - diluted | 18,196,351 | ||
| Basic loss per share | (13.9) | (14.1) | (28.0) |
| Diluted loss per share | (13.9) | (14.1) | (28.0) |
| Loss after tax | (2,530) | (2,558) | (5,088) |
| Amortisation and M&A related exceptional items (note 3) | 2,584 | 1,692 | 4,276 |
| Other exceptional charges and credits (note 4) | 688 | 586 | 1,274 |
| Theoretical tax effect of above adjustments | (622) | (90) | (712) |
| Adjusted earnings | 120 | (370) | (250) |
| Adjusted earnings per share | 0.7p | (2.0)p | (1.4)p |
For the 52 week period ended 30 September 2017
| Continuing £'000 |
Discontinued £'000 |
Total £'000 |
|
| Loss after tax | (582) | (565) | (1,147) |
| No. | |||
| Weighted average number of shares - basic | 14,485,099 | ||
| Dilutive effect of share options | 75 | ||
| Weighted average number of shares - diluted | 14,485,174 | ||
| Basic loss per share | (4.0) | (3.9) | (7.9) |
| Diluted loss per share | (4.0) | (3.9) | (7.9) |
| Loss after tax | (582) | (565) | (1,147) |
| Amortisation and M&A related exceptional items (note 3) | 1,968 | - | 1,968 |
| Other exceptional charges and credits (note 4) | 667 | 36 | 703 |
| Theoretical tax effect of above adjustments | (599) | (7) | (606) |
| Adjusted earnings | 1,454 | (536) | 918 |
| Adjusted earnings per share | 10.0 | (3.7) | 6.3 |
9. Goodwill
| Total £'000 |
|
| Cost and gross carrying amount | |
| At 1 October 2016 | 15,020 |
| Acquired through business combinations | 1,042 |
| At 30 September 2017 | 16,062 |
| Removed upon business disposal (note 17) | (1,692) |
| At 29 September 2018 | 14,370 |
| Date of acquisition | Original cost £'000 |
|
| Precision Machined components | ||
| Al-Met Limited | February 2010 | 272 |
| Roota Engineering Limited | March 2014 | 5,117 |
| The Quadscot Group | October 2014 | 3,079 |
| Martract Limited | December 2016 | 1,042 |
| Alternative Energy | ||
| The Greenlane Group | October 2014 | 4,860 |
| At 29 September 2018 | 14,370 | |
Goodwill arising on consolidation represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. The Group has Goodwill in relation to 5 acquisitions shown above.
The Group tests annually for impairment, or more frequently if there are indicators that goodwill might be impaired.
The recoverable amounts of the cash generating units (CGUs) are determined from value in use calculations, covering a four year forecast and applying a discount rate of 12.5% for Precision Machined Components and 15% for Alternative Energy (2017: 11.6% for both). The same discount rate is used for all the Precision Machined Components CGUs due to the businesses having common sources of finance and operating in very similar markets.
The forecast is approved by management and the Board of Directors, and is based on a bottom up assessment of costs and uses the known and estimated pipeline.
In the manufacturing divisions, the forecasts used for years two to four assume revenue growth, returning to levels achieved in 2014 by 2022 and into perpetuity, no long-term rate of growth or inflation is incorporated into perpetuity. In the Alternative Energy division, the forecasts used for years two onwards, prudently assume no revenue growth. A perpetuity is used as a terminal value in this calculation.
Management's key assumptions are based on their past experience and future expectations of the market over the longer term. The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes to selling prices and direct costs.
Apart from the considerations described in determining the value-in-use of the cash generating unit above, the Group management does not believe that possible changes in the assumptions underlying the value in use calculation would have an impact on the carrying value of goodwill.
After applying sensitivity analysis in respect of the results and future cash flows, in particular for presumed growth rates and discount rates, management believe that no impairment is required for Precision Machined Components. Management is not aware of any other changes that would necessitate changes to its key estimates. At 29 September 2018, no reasonable expected change in the key assumptions (including a 5% decrease in forecast cash flows) would give rise to an impairment charge for Precision Machined Components. The Alternative Energy division was assessed against a number of factors and incorporated the findings of the strategic review undertaken by the Board. The announcement post-year end divesting of the Alternative Energy Division indicated sufficient headroom.
| Intellectual Property | IT systems & Software Licenses |
Development expenditure |
Technology | Non contractual customer relationships |
Total | |
| Cost | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| At 2 October 2016 | - | 44 | - | 5,316 | 11,702 | 17,062 |
| Additions | - | 432 | 564 | - | - | 996 |
| Acquired through business combination | 2,796 | - | - | - | 944 | 3,740 |
| At 30 September 2017 | 2,796 | 476 | 564 | 5,316 | 12,646 | 21,798 |
| Additions | - | 326 | 44 | - | - | 370 |
| Removed upon business disposal | - | - | - | - | (766) | - |
| At 29 September 2018 | 2,796 | 802 | 608 | 5,316 | 11,880 | 21,402 |
| Amortisation | ||||||
| At 2 October 2016 | - | 1 | - | 1,423 | 4,309 | 5,733 |
| Charge for the period | 155 | 9 | - | 708 | 1,535 | 2,407 |
| At 30 September 2017 | 155 | 10 | - | 2,131 | 5,844 | 8,140 |
| Charge for the period | 187 | 98 | 40 | 703 | 1,556 | 2,584 |
| Removed upon business disposal | - | - | - | - | (766) | (766) |
| At 29 September 2018 | 342 | 108 | 40 | 2,834 | 6,634 | 9,958 |
| Net book value | ||||||
| At 29 September 2018 | 2,454 | 694 | 568 | 2,482 | 5,246 | 11,444 |
| At 30 September 2017 | 2,641 | 466 | 564 | 3,185 | 6,802 | 13,658 |
| Remaining useful economic life at 29 September 2018 | 13 years | 4 years | 9 years | 4 years | 5 years |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Current | ||
| Trade receivables | 8,384 | 8,820 |
| Amounts due from customers for construction contract work | 1,106 | 1,256 |
| Other receivables | 646 | 216 |
| Prepayments and accrued income | 1,862 | 1,047 |
| 11,998 | 11,339 | |
The average credit period taken on the sale of goods and services was 53 days (2017: 61 days) in respect of the Group. Two debtors individually accounted for over 10% of trade receivables and represented 36% of the total balance. In 2017, one debtor accounted for over 10% of trade receivables and represented 14% of the total balance.
Ageing of past due but not impaired receivables:
| 2018 | 2017 | |
| £'000 | £'000 | |
| Days past due: | ||
| 0 - 30 days | 954 | 1,702 |
| 31 - 60 days | 172 | 310 |
| 61 - 90 days | 186 | 360 |
| 91 - 120 days | 87 | 50 |
| 121+ days | 464 | 84 |
| Total | 1,863 | 2,506 |
The Group's doubtful debt provision is not a significant balance.
| 2018 | 2017 | |
| £'000 | £'000 | |
| Amounts due within 12 months | ||
| Trade payables | 3,741 | 5,030 |
| Progress billings on construction contracts in excess of work completed | 3,698 | 1,368 |
| Other tax and social security | 689 | 757 |
| Accruals, deferred income and other payables | 4,617 | 4,593 |
| Total due within 12 months | 12,745 | 11,748 |
| Amounts due after 12 months | ||
| Accruals, deferred income and other payables | 198 | 238 |
| Total due after 12 months | 198 | 238 |
Deferred income due after 12 months includes grant income received and customer prepayments for contracts in delivery in a number of years. There are no unfulfilled conditions or other contingencies attached to these grants.
The warranty provision at 29 September 2018 is £600,000 (2017: £491,000).
| 2018 £'000 |
2017 £'000 |
|
| Non-current | ||
| Bank borrowings | 11,800 | 15,000 |
| Finance lease liabilities | 836 | 642 |
| 12,636 | 15,642 | |
| Current | ||
| Finance lease liabilities | 241 | 219 |
| 241 | 219 | |
| Total borrowings | 12,877 | 15,861 |
Total borrowings include secured liabilities of £15 million. Bank borrowings are secured on the property, plant and equipment of the group. Obligations under finance leases are secured on the plant & machinery assets to which they relate.
| 2018 | 2017 | |
| £'000 | £'000 | |
| Due within one year | ||
| Finance lease liabilities | 241 | 219 |
| Due for settlement after one year | ||
| Bank borrowings | 11,800 | 15,000 |
| Finance lease liabilities | 836 | 642 |
The group has the following undrawn borrowing facilities:
| 2018 | 2017 | |
| £'000 | £'000 | |
| Expiring beyond one year | 3,200 | - |
14. Construction contracts
| 2018 £'000 |
2017 £'000 |
|
| Costs incurred and profit recognised to date | 18,268 | 19,862 |
| Less: Progress billings | (20,860) | (19,974) |
| Net balance sheet position for ongoing contracts | (2,592) | (112) |
| Representing: | ||
| 2018 £'000 |
2017 £'000 |
|
| Amounts due from customers for construction contract work | 1,106 | 1,256 |
| Amounts due from customers for construction contract work | (3,698) | (1,368) |
| Net balance sheet position for ongoing contracts | (2,592) | (112) |
| Accelerated tax depreciation |
Intangible assets |
Short term temporary differences |
Share option costs |
Unused losses |
Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 October 2016 | (718) | (1,256) | 95 | 66 | 330 | (1,483) |
| Prior year adjustment | (3) | - | (13) | 56 | (40) | - |
| Credit / (charge) to income | 291 | 325 | 68 | 16 | (290) | 410 |
| Acquired through business combinations | - | (673) | - | - | - | (673) |
| At 30 September 2017 | (430) | (1,604) | 150 | 138 | - | (1,746) |
| Prior year adjustment | - | - | - | - | - | - |
| Credit / (charge) to income | 244 | 296 | (97) | (33) | 147 | 557 |
| Removed upon business disposal (note 17) | - | - | - | - | - | - |
| At 29 September 2018 | (186) | (1,308) | 53 | 105 | 147 | (1,189) |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Non-current asset Deferred tax asset |
402 | 343 |
| Non-current liabilities Deferred tax liabilities |
(1,591) | (2,089) |
| (1,189) | (1,746) | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Loss after tax | (5,088) | (1,147) |
| Adjustments for: | ||
| Finance costs - net | 394 | 339 |
| Depreciation of property, plant and equipment | 1,378 | 1,438 |
| Amortisation of intangible assets | 2,584 | 2,407 |
| Share option costs | (2) | 121 |
| Income tax credit | (589) | (766) |
| (Profit) / loss on disposal of property, plant and equipment | (69) | 21 |
| Goodwill impairment | 1,692 | - |
| Exceptional deferred consideration released and revaluation | - | (597) |
| Exceptional impairment of assets | - | 11 |
| Changes in working capital: | ||
| (Increase) / decrease in inventories | (521) | 243 |
| (Increase) / decrease in trade and other receivables | (1,613) | 413 |
| Increase / (decrease) in trade and other payables | 2,125 | (2,164) |
| Cash flows from operating activities | 291 | 319 |
17. Business disposals
On 7 June 2018, the Group completed the disposal of the entire issued share capital of its subsidiary, Hydratron Limited, to Pryme Group Limited, majority owned by Simmons Private Equity LP. This business was reported by the Group as the Engineered Products segment.
The initial consideration was £1.1m (less costs and retentions), along with potential deferred contingent consideration up to a maximum of £2.3m, dependent on revenue in the twelve months post completion. As detailed in Note 5 to these financial statements a goodwill impairment of £1.7m was recognised as an exceptional charge in the period ended 29 September 2018.
The table below summarises the profit on disposal of Hydratron Limited:
| £'000 | |
| Gross Proceeds | 1,112 |
| Deferred and contingent consideration | - |
| ________ | |
| Net proceeds | 1,112 |
| Net book value of assets disposed of: | |
| Goodwill | - |
| Property, plant & equipment | 208 |
| Inventories | 1,124 |
| Trade and other receivables | 954 |
| Cash and cash equivalents | 24 |
| Trade and other payables | (1,084) |
| ________ | |
| Loss on disposal of Hydratron Limited | (114) |
| ________ | |
| 2018 | 2017 | |
| £'000 | £'000 | |
| Short-term employee benefits (including Employers NI) | 975 | 622 |
| Post-employment benefits | 45 | 41 |
| Share based payments | (12) | 63 |
| Total remuneration | 1,008 | 726 |
During the period ended 29 September 2018, Pressure Technologies spent £37,108 (2017: £64,779) with Vias Digital Limited with which one of the Non-Executive Directors, Alan Wilson, is a connected person.
20. Post Balance sheet event
On 9 December 2018 entered into a binding letter of intent ("LOI") with Creation Capital Corp (TSX-V: CRN.P) ("Creation Capital") a capital pool company listed on the TSX-V to sell its wholly-owned subsidiary, PT Biogas Holdings Limited, which is the holding company for the Group's Alternative Energy Division for a total consideration of £11.1 million. The process is expected to complete in January 2019.
21. Notice of Annual General Meeting
The Annual General Meeting of the Company will be held at Chesterfield Special Cylinders, Meadowhall Road, Sheffield, South Yorkshire, S9 1BT, on Tuesday 12 February 2019.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
END
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