Pressure Tech Regulatory News (PRES)

13 December 2016

Pressure Technologies plc

("Pressure Technologies" or the "Group")

2016 Audited Preliminary Results

Pressure Technologies (AIM: PRES), the specialist engineering group, announces its preliminary results for the year ended 1 October 2016.

John Hayward CEO, Pressure Technologies said:

"The year has seen both the rebuilding of our Alternative Energy Division, following its restructuring in 2015, and the completion of the restructuring of our Manufacturing Divisions. The Group is far more resilient, with Manufacturing Divisions now structured to be profitable in the current market and an Alternative Energy Division on the brink of a breakthrough to sustainable revenues and profits.

"Significant progress in diversification has been made in the Cylinders Division and we continue to seek out new products and markets for the EP and PMC Divisions. The acquisition of Martract Ltd in December 2016 will assist with this process."

Financial

· Revenue of £35.8 million (2015*: £53.8 million )

· Adjusted operating loss** £(0.4) million (2015*: £3.8 million profit)

· Adjusted operating profit** in the Manufacturing Divisions £2.2 million (2015: £6.7 million)

· Adjusted operating loss** in Alternatively Energy slightly ahead of market expectation at £(1.1) million with H1 £0.9 million and H2 £0.2 million (2015: £(1.1) million)

· Annualised savings of £5.4 million achieved from restructuring over the last two years

· Net debt reduced to £6.6 million (2015: £7.1 million)

· Adjusted loss per share (2.6)p (2015 restated: earning per share of 18.1p)

· Profit after tax £0.6 million (2015: £1.2 million)

· Final dividend nil (2015: 5.6p)

* represented to show results of the Engineered Products US operation as discontinued

** before acquisition costs, amortisation and exceptional charges and credits

Operational

· Revenues from oil and gas reduced to 43% (2015: 57%)

· Manufacturing Divisions gross margins held up at 31% (2015: 32.2%)

· Manufacturing Divisions aligned to be profitable at volumes seen in the second half

· Al-Met won largest ever order of $1.2 million

· Post year end strategic acquisition of Martract Limited

· Alternative Energy has £14.2 million of upgrader orders carried over for delivery in 2017

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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 systems serving the global energy, defence and industrial gases markets. Today it continues to serve those markets from a broader engineering base with specialist precision engineering businesses and has a worldwide presence in Alternative Energy as a global leader in biogas upgrading. On this foundation, the company is building a highly profitable group of companies through a combination of organic initiatives and acquisitions.

Pressure Technologies has four divisions, Precision Machined Components, Engineered Products, Cylinders and Alternative Energy, serving four markets: oil and gas, defence, industrial gases and alternative energy.

Precision Machined Components

· 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

Engineered Products

· Hydratron, Manchester, acquired in 2010 www.hydratron.com

Cylinders

· Chesterfield Special Cylinders, Sheffield, IPO cornerstone in 2007 www.chesterfieldcylinders.com

· Kelley GTM Manufacturing, Amarillo, USA - 40% stake acquired by the Group in December 2013 www.kelleygtm.com

Alternative Energy

· Chesterfield BioGas, Sheffield, founded in 2008. Renamed Greenlane Biogas UK on 5 June 2015.

Greenlane, Vancouver, Canada and Auckland, New Zealand, acquired in October 2014 www.greenlanebiogas.com

Chairman's Statement

The last 12 months have been incredibly busy for the Group, as we realigned our manufacturing businesses to remain profitable at the current volumes from the oil and gas sector, whilst working to build the order book for Alternative Energy. For the first time in the Group's history, less than half, 43%, of our revenues came from the oil and gas sector, with alternative energy and defence making significant contributions of 32% and 18% respectively.

The underlying qualities of our manufacturing divisions and the swift management action taken at the beginning of the downturn in the oil and gas market are evidenced by the results from these divisions, which overall remained both profitable and cash generative.

Post year-end we added another business to the Precision Machined Components Division (PMC), Martract Limited, which is a strong strategic fit, strengthens our existing market position and gives significant opportunity to penetrate new markets.

There continues to be substantial potential for the Alternative Energy Division. That said, it had a somewhat frustrating year, suffering from contract award delays and some legacy costs which adversely impacted revenues and profits. However, as a result of much hard work, it is encouraging to report that we ended the year with an upgrader order book value of £14.2 million, which is £11.5 million higher than the same point last year.

The speed and degree of change across the Group would not have been possible without the dedication and commitment of our employees at all levels. As a specialist engineering Group we rely on the skills of our employees to maintain our reputation for quality and integrity. On behalf of the Board, I would like to take this opportunity to thank them all for their continued hard work and support.

Results

Following the closure of Engineered Product's US manufacturing facility in September, the results for the year only show the continuing operations and the prior year comparison has been represented. On this basis, revenues for the Group fell by over 33% to £35.8 million (2015: £53.8 million) as our manufacturing businesses continued to face declining sales volume from the oil and gas market. Anticipated volume from our Alternative Energy Division, which is unaffected by the oil and gas market, did not materialise in the period due to delays to certain projects and delayed contract awards. The impact on adjusted operating profit was a loss of £0.4 million (2015: £3.8 million profit).

Net asset value was £34.8 million (2015: £36.3 million) and operating cash generation was £4.4 million (2015: £7.9 million) after reorganisation costs. At the year-end, net debt was £6.6 million (2015: £7.1 million). Given the reduction in revenues and that the final deferred consideration for Roota of £2.5 million was paid out of cash, along with other non-operating cash inflows of £0.4 million, this result is pleasing and reflects the underlying disciplines in place. 

Restructuring and redundancy costs in the period were £0.7 million (2015: £0.7 million) giving total annualised savings of £3.8 million, bringing the total annualised savings since October 14 to £ £5.4 million.

Given the Board's outlook for oil and gas for 2017 and with the enlarged Alternative Energy Division still to deliver a profit, the Board has taken the decision that a final dividend will not be paid this year and as no interim dividend was paid there is no dividend payment for the year (2015: 8.4p).

Outlook

The Group will continue its growth strategy, combining acquisitions and organic growth. Our Manufacturing Divisions are firmly focused on expanding revenues outside the oil and gas sector and the medium-term aim is to have a better balance of business within these Divisions, as well as realising the potential of the Alternative Energy Division, which has different market drivers to the rest of the Group.

In the oil and gas market, global oil demand is forecast to marginally increase by 1.5% in 2017 to 96.89 million barrels per day (mbpd) driven by demand from non-OECD Asia. Before OPEC's recently announced output reductions, global oil production was projected to remain essentially steady at 95.69mbpd in 2017. However, any projection is fraught with uncertainty. The cuts may only have a small impact on global oil production growth, since compliance by some states has historically proven to be highly unreliable. The recent increase in drilling activity seen in USA shale oil fields, spurred on by a relatively stable oil price of around $50 barrel, may well give rise to increasing output, thereby pinning prices at today's levels. Rex Tillerson, CEO at Exxon Mobile, recently commented that production from USA shale regions will keep oil prices subdued in the medium term.

The Board's views concur with those of Tillerson and our Manufacturing Divisions are structured to continue making profits in the current market environment, with a focus to diversify outside of oil and gas markets.

The Cylinders Division has long-term defence market orders and the prospect of further growth in this sector from future UK, Australian and US submarine build programmes. Short-term growth will be derived from the expansion of the division's service offerings, particularly our unique Integrity Management service, which brings laboratory level inspection direct to site.

The Precision Machined Components and Engineered Products Divisions will continue to take opportunities to expand customer and geographic focus within the oil and gas market, but will also expand into other market sectors going forward. The acquisition of Martract Limited, will assist with this process given that 60% of its business is from a range of industries outside of oil and gas.

In the near-term, Alternative Energy remains an exciting area of growth for the Group. The global market for biogas upgrading is growing at a combined annual rate of nearly 30%, driven predominantly by Government regulations and greenhouse gas emission targets. Greenlane is a well-known established global brand and as one of the only companies to offer three of the main upgrading technologies, we are well positioned to realise our potential over the medium-term. With a strong order book for 2017 and a considerable pipeline of follow-on projects the Board expects the potential within this division to be realised.

The Board remain confident in the medium to long-term prospects for the Group.

Alan Wilson

Chairman

13 December 2016

BUSINESS REVIEW

The year has seen both the rebuilding of our Alternative Energy Division, following its restructuring in 2015, and the completion of the restructuring of our Manufacturing Divisions. The Group is far more resilient, with Manufacturing Divisions now aligned to be profitable in the current market and an Alternative Energy Division on the brink of a breakthrough to sustainable revenues and profits.

Whilst oil and gas remained the major market for the Group's products, accounting for 43% of Group revenues in the year, this was a marked reduction from 2015 where 57% of revenues were to this market. The five-year picture shows:

Expansion of the Alternative Energy Division and further diversification in our Manufacturing Divisions will see this trend continue in 2017.

The key points for the year are:

Manufacturing Divisions

The Group's manufacturing Divisions have made significant additional cost reductions in the year, the full benefits of which will be realised in 2017. Headcount has been reduced by a further 77 employees, making an overall decrease of 44% since October 2014. Whilst cuts have been significant, key skills have been retained, so there will not be any adverse impact on quality and service. The Divisions are structured to be profitable in the current oil market climate and will continue to diversify their customer base and end markets.

Precision Machined Components Division ("PMC")

This Division comprises Al-Met, Roota Engineering and Quadscot Precision Engineers. Al-Met produces wear resistant components in a range of high-alloy steels and tungsten carbides for use in high-pressure choke and flow control valves, designed to regulate flow volumes in extremely demanding applications in the subsea and surface oil and gas industries. Roota and Quadscot make a wide range of components for oil and gas pressure systems and downhole tools, with Roota generally focusing on larger, longer products and Quadscot on smaller product in a range of high-alloy materials.

PMC's revenues are almost wholly derived from the oil and gas market, so have been impacted by reductions in customer spending. However, Al-Met's world-class lead-times and Roota's niche capability for machining complex geometrical shapes in unforgiving materials have given both increased market share and developed new customers in the falling market. Quadscot has experienced more difficult trading conditions, due to its reliance on making components for subsea oil exploration and production, plus a larger pool of competitors chasing volume at low prices. However, in-sourcing component manufacture from Chesterfield Special Cylinders and Hydratron has given Quadscot some cushion against the downturn. The Division is profitable at current order levels.

Headcount reduction has continued in PMC, as we aligned costs with current order levels. Since its October 2014 peak, headcount has been reduced by 49% (2015: 22%). At the same time, technical capability has been strengthened through recruitment, which is yielding improvements in processes and, when volumes recover, will give rise to significant productivity gains as the division has significant latent capacity.

Customer ordering patterns remain unpredictable, but do not appear to be subject to further deterioration. Al-Met took a $1.2 million order, its largest ever, for an oil and gas project in the Middle-East for delivery in 2017, but this was exceptional in an otherwise subdued market. This order was previously reported as a water industry project but it became apparent during order fulfilment that it was for the oil industry.

The oil and gas market will remain very important to the division, which has market leading capabilities to manufacture highly complex components to exacting tolerances in demanding materials. These capabilities are important to the market irrespective of activity levels. However, the division continues to seek out opportunities for diversification away from the oil and gas market. In the longer-term work done to obtain "Fit for Nuclear" accreditation should translate into incremental revenues and the division continues to seek entry points into the defence, aerospace and automotive markets.

The purchase of Martract Ltd in December 2016, as well as being immediately earnings enhancing, brings several benefits, such as expanding relationships with existing customers, reducing order delivery lead-times through vertical integration within the Division and giving access to non-oil and gas markets.

Capital expenditure was £0.3 million, principally on equipment to improve productivity with the major spend in the year centred on Roota. No major capital expenditure is required in 2017, unless new customer demand requires investment to extend the current product range.

Engineered Products Division ("EP")

The EP Division manufactures a range of Hydratron branded air-operated high-pressure hydraulic pumps, gas boosters, power packs, hydraulic control panels and test rigs, mainly for use in the oil and gas sector. The Division's products are typically capital equipment purchases, so sales have been severely impacted by the downturn in the oil and gas sector where budgets have seen major cutbacks.

At the start of the year, the Division comprised Hydratron Ltd, based in Altrincham in the UK, plus a satellite facility, Hydratron Inc, based in Houston Texas. During 2016, it became apparent that this US manufacturing facility was too small to achieve meaningful market penetration, so a distributor was appointed in September to handle sales. Key operational staff and inventories were transferred to the distributor and international sales and design staff relocated back to the UK. This has the double advantage of eliminating fixed costs, whilst unlocking much larger market opportunities in the Americas.

The UK operation has been radically restructured. Since October 2014, headcount has been reduced by 64%, the majority of which was in the year under review (2015: 28%). The whole business is in the process of implementing a lean operating system to reduce lead times and costs. Breakeven sales levels have been reduced in the year from over £700,000 per month to under £400,000. Delivery lead times for standard pumps and power packs have been reduced from over two months to under two weeks and in some cases next day delivery. A review of core competencies has resulted in external sourcing of clamping systems for test benches which significantly reduces costs whilst at the same time expands the product range.

Revenues have been constrained by its limited geographical reach. Strong distribution channels exist in the UK, USA, Arabian Gulf, Australia and Singapore, but this leaves a significant number of regions to be targeted. Consequently, the business is focused on expanding sales channels and new distribution agreements have recently been concluded for South and West Africa and Italy. Other regions will be included in due course.

Cylinder Division

Chesterfield Special Cylinders ("CSC"), supplies a range of high-pressure cylinder systems into the defence, oil and gas and industrial gases markets. The principal reduction in revenues in the year was due to a further £4 million fall in sales into the oil and gas market. Over the last two years, revenues from this sector have reduced by £15 million, as the market for Air Pressure Vessels ("APVs") used in motion compensation systems has to all intent and purpose disappeared. Major recovery in this market depends on orders being placed for new drillships and semi-submersible drilling rigs, which is highly unlikely as long as current market conditions continue. The remainder of the decline in the year was due to reduced defence sales, partially offset by growth in service projects.

The fall in defence sales was a result of phasing on submarine projects, rather than any softening in the market and the defence orderbook and pipeline remains healthy. CSC remains the established leader in sales to NATO and NATO-friendly nations outside the USA.

After 18 months of operation, our sales team in the USA continues to make good progress in entering the US defence and commercial markets. Entry into a new market typically takes three to five years and progress is in line with management expectations. Inspectors from the US Department of Transportation conducted a certification audit at CSC in the summer and we now have all the required approvals to sell into the US transportable gases market.

Sales of services increased by 28% year-on-year, with the start of a new cycle of trailer reconditioning and a further increase in the Integrity Management service. Revenues from Integrity Management increased by 14% to just over £1.0 million, primarily due to increased activity in the defence sector. Services now account for 25% of sales and approximately 28% of the Divisional gross margin (2015: 13% and 17% respectively).

Headcount reduction in CSC has been less marked than in PMC and EP, as significant overhead is required to support the defence and services revenue streams. The business operates in highly specialised markets with few people worldwide having relevant skills and experience. That said, the division has reduced headcount by 15% over the period since October 2014 (2015: 6%) and significant work has been carried out to improve productivity and eliminate waste.

The year's capital expenditure of £0.4 million was spread across a range of productivity, process and health and safety projects. Capital expenditure for 2017 is anticipated to be similar to 2016.

Alternative Energy Division

The Division is a designer and supplier of equipment used to upgrade biogas produced by the anaerobic digestion of organic waste to high-quality methane, which is suitable either for injection into the gas grid, or used as vehicle fuel. The upgrader market is driven by environmental subsidy rather than oil and gas prices, giving a welcome source of sales diversification for the Group. Unlike our three manufacturing Divisions, AE subcontracts manufacturing to a number of specialists that are located close to installation sites. This avoids the fixed costs of maintaining manufacturing facilities and gives the flexibility to move production to suit customer needs.

The Division was transformed by the purchase of the business and certain assets of its technology provider, Greenlane, in October 2014 and now trades under that name. This has given the Division a worldwide platform for selling biogas upgrading technology, trading out of the UK, Canada and New Zealand. In 2012, the Division accounted for 1% of Group revenues, in 2016 it accounted for 32% of Group revenues (2015: 26%).

Following major restructuring of the Division in 2015, the past year has focused on rebuilding the order book and it is pleasing to note upgrader contracts worth £20.8 million were secured. However, due to customer enforced delays, the full financial benefit of these contracts will not be realised until 2017. As a result of this, plus additional costs on legacy contracts, the Division was loss making for the year. 

Development activity was spread across projects for water wash technology, pressure swing adsorption ("PSA") and membrane technologies making the division the only "technology agnostic" provider of upgrader equipment in the market. Consequently, Greenlane can offer its customers the most appropriate solution for each project. Developments in water-wash technology have been at both ends of the processing size range. At the high-volume end, the new Kauri water wash upgrader is capable of processing up to 5,000 cubic meters of biogas per hour and is the largest system on the market. At the low-volume end of the market, the Kanuka Gen 2.0 is a low-cost value engineered upgrader designed for entry level projects, with volumes of up to 300 cubic metres of biogas per hour. Greenlane has orders for both models for delivery in 2017. Two PSA systems are currently being installed in North America and several membrane systems have been quoted.

Over £14 million of upgrader orders were carried over for delivery in 2017, destined for the North American, UK and European markets. The pipeline of potential contracts with a medium to high probability of securing orders in the first-half of the year is in excess of £13 million. The division's business model is to focus on markets where subsidies and incentives are certain. Market activity continues to grow in the USA, Canada, Brazil, the UK, the Netherlands and France and we are concentrating our efforts in these areas and Italy where the market activity is just beginning.

The operational businesses in the Division have a target of covering 100% of their fixed costs through maintenance contracts. In 2016, the UK and Europe achieved 30% coverage and the North American business 7%. The lower coverage in North America is a combination of lack of development of the market and customer's preferring to maintain their own equipment.

Capital expenditure for the year was less than £0.1 million, whilst £0.2 million will be invested this year, primarily in new business systems.

People

Continuing weakness in the oil and gas market resulted in a second wave of redundancies in the manufacturing divisions. These redundancies have been backed up by investment in equipment and working practices to ensure that the flexibility and ability to expand as market conditions improve have not been lost. As ever, we have been careful to ensure that we have retained our core skills.

Our apprentice and graduate training schemes have continued. I am pleased to report that one of our CSC apprentices won apprentice of the year at the Made in Sheffield Awards, another former apprentice was awarded a 1st class honours degree in engineering and the finance director of the PMC Division has been awarded an MBA with distinction, all sponsored by the Group.

There will be a focus in 2017 on succession planning and management training. The Group has a cadre of young talent that will form part of the next generation of senior management. It is crucial to the Group's long-term success that we nurture and develop these people, as well as developing the skills of our existing senior management teams.

Summary and outlook

This was another busy year for the Group as the restructuring and rebuilding begun in 2015 in all important respects was completed, resulting in a much better balanced mix of revenues from the oil and gas, defence and alternative energy markets.

The oil and gas market will remain an important revenue and profit generator for the Group. However, we also expect to make further progress in diversifying our manufacturing divisions to reduce the dominance that the oil and gas market has in Group results. Significant progress in diversification has been made in the Cylinders Division and we continue to seek out new products and markets for the EP and PMC Divisions. The acquisition of Martract Ltd in December 2016 will assist with this process.

The value of firm contracts for 2017 in Alternative Energy is very encouraging. The prospective new orders pipeline beyond this remains strong across the UK, Europe and North America and we expect the division to be a major profit generator for the Group in 2017 and beyond.

The Board remains confident in the medium to long-term prospects for the Group and believes that when the oil and gas market returns it will present considerable opportunities. In the meantime, we have taken and will continue to take the action necessary to ensure the resilience of our businesses whilst continuing to invest in the future of the Group and implement strategic objectives to broaden our customer, technology and industrial base.

John Hayward

Chief Executive

13 December 2016

FINANCIAL REVIEW

Overview

I am pleased to present the results in what has been an incredibly busy year of change and consolidation for the Group.

The financial results show a clear difference emerging between the Manufacturing Divisions, which are higher margin, book and ship with short working capital cycle and Alternative Energy, which is lower margin long term contracting with much higher individual value projects characterised by a variable working capital profile.

Much work has been done over the year to maintain cash generation and this achievement has enabled continued investment in capital assets during the year and a strategic acquisition post year-end.

Manufacturing

Overall the Manufacturing Divisions continued to perform in line with the latest market expectations and there have been some positive developments in the year.

In September the closure of the Engineered Products US manufacturing facility was completed as part of the Group restructuring and this is presented as a discontinued operation under IFRS5 "Non-current Assets Held for Sale and Discontinued Operations" and the 2015 results have been represented accordingly. This operation had been loss making for the last two years and it had become clear that it was not of a sufficient scale to penetrate the US market effectively and should be closed. Further details of this are given in Note 8 to the financial statements.

Revenue in the continuing operations has been significantly impacted by the lower oil and gas market volumes and fell to £24.4 million (2015: £39.8 million). This is particularly marked in the PMC Division, which experienced a 43% reduction from the prior year.

Gross Profit Margin held up at 31% (2015: 32.2%). The first half of the year was stronger than the second half, which was impacted by competitive pricing pressures in PMC and the mix of work in CSC. The success of the restructuring of the Engineered Products Division is evidenced by the 4.2ppt improvement in year-on -year gross margin.

Operating profit in the Manufacturing Divisions (before acquisition costs, amortisation and exceptional charges) reduced to £2.2 million (2015: £6.7 million). The return on sales (RoS) was adversely impacted by the significant sales volume reduction, decrease in gross margin and comparatively higher fixed cost in the first half whilst the restructuring was ongoing. This is now largely complete and the divisions have been scaled down to be profitable at the low volumes experienced in the second half. The impact of this is a 4ppt improvement in RoS in the second half.

Cash generation is, and remains, strong in the Manufacturing Divisions with an operating cash inflow of £5.2 million (before exceptional redundancy costs) demonstrating the underlying stability and strength in this part of the Group.

Alternative Energy

As noted in the August trading update statement delays both in timing of award and the commencement on a number of contracts, particularly in the USA, have had a significant impact on the expected results for the year as a whole. The Operating Loss (before acquisition costs, amortisation and exceptional charges) was £1.1 million, slightly ahead of the latest market expectation for the year (2015: Loss £1.1 million). 

In addition to the slippage of sales, we also encountered some unanticipated, additional legacy costs (£0.4 million) and margin erosion on a first of type project in North America. As a result gross margin fell to 17.4% for the full year (2015: 20.8%). Profitability improved over the year with the first half loss of £0.9 million reducing to £0.2 m in the second half, as the phasing of work and momentum in order award and commencement picked up.

The Group continued to invest in technology in the Alternative Energy Division and R&D costs of £0.2 million have been expensed in the year (2015: £0.7 million).

The remaining provision for deferred consideration of £3.3 million (net of foreign currency losses on revaluation) was released in the first half. The delays in the timing of orders and operating loss means the relevant businesses are no longer expected to hit the future trigger points for the earn-out payments which are fixed with the financial year. Given this is a non-trading item it has been presented as an exceptional item, in accordance with Group's accounting policies.

As the Alternative Energy Division grows the short-term challenge is managing the working capital requirement. Individual projects are planned to be at least working capital neutral throughout, however, given the size of the contracts and associated invoicing milestones the cash flows can be variable and disconnected from the profit recognition. The Division was cash generative in the year generating £0.9 million operating cash inflow, despite the losses, as a result of the phasing of the contracts in the second half (2015: operating cash inflow £0.2 million).

Central costs

Unallocated central costs (before acquisition costs, amortisation on acquired businesses and exceptional charges and credits) were £1.5 million (2015: £1.8 million). This reduction reflects the Group wide focus on cost reduction and combining of roles as part of the group wide restructuring.

Foreign Exchange

The Group has a number of major exposures to movements in foreign exchange rates related to both transactional trading and translation of overseas investments. 

In the year under review, the principal exposures which arose from trading activities, were to movements in the value of the Euro and the US Dollar relative to Sterling. As the Group companies both buy and sell in overseas currencies, particularly the Euro and the US Dollar, there is a degree of natural hedge already in place. In the Alternative Energy division the currency exposure is actively managed at the outset of a project and appropriate forward contracts taken out to cover the majority of the exposure. As at 1 October 2016 there were no forward contracts in place (2015: £26k).

In 2016 a net gain of £0.7 million (2015: £0.2 million) has been recognised in adjusted operating profit in respect of realised and unrealised transactions in Euro, US Dollar, Canadian Dollar and New Zealand Dollar. A loss of £0.5 million (2015: £0.4 million gain) has been recorded below adjusted operating profit in respect of the retranslation of the deferred consideration liability denominated in New Zealand Dollars.

At the present time no cover is held against the value of overseas investments or intercompany loans with overseas entities as these are expected to be held for the long term and over the next year dividend flows are not expected to be significant.

Taxation

The tax credit for the year was £1.0 million (2015: £0.1 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 current year.

The applicable current tax rate for the year is 20% (2015: 20.5%). 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.

Corporation tax refunded in the year totalled £0.5 million (2015: tax paid £1.8 million), all of which relates to the UK.

Funding and cash flow

Net debt reduced to £6.6 million (2015: £7.1 million) as the strong cash generation in the Manufacturing Divisions combined with the Alternative Energy Division to generate net operating cash inflow of £5.1 million, before restructuring costs of £0.7 million (2015: net cash inflow £7.9 million). Net debt would have been in line with market expectation had a number of significant expected receipts in the AE Division been received before the balance sheet date. Operating cash generation in second half was stronger (£2.7 million vs £2.4 million in the first half) before exceptional redundancy costs due to the profitability of the Manufacturing Divisions.

Cash conversion (cash inflow from operating activities divided by adjusted operating profit) in the Manufacturing Divisions was a ratio of 2.4:1. The losses in AE and overall Group operating loss (before acquisition costs, amortisation and exceptional charges) mean a group cash conversion ratio is not calculated this year (2015: 2.41:1).

Non-trading cash flows reflect the continued investment in the business through capital expenditure of £0.9m and payment of the final Roota acquisition deferred consideration of £2.5 million, along with the final 2015 dividend payment £0.8 million.

The Group complied with all financial covenants on the banking facilities during the year.

Post balance sheet events

On 7 December 2016 the Group acquired the entire issued share capital of UK based Martract Limited. The maximum total consideration for the Acquisition was £4.3 million on a cash free, debt free basis, comprising an initial cash consideration of £3.7 million plus cash balances ("Initial Consideration") and a conditional deferred payment of up to £0.6 million ("Additional Consideration"). The Additional consideration payable in respect of the 12 month period following the Acquisition (the "Earn-out Period") is dependent on the future EBITDA performance of Martract. The Initial Consideration will be met from the Group's existing bank facilities and cash.

Joanna Allen

Finance Director

13 December 2016

CONSOLIDATION STATEMENT OF COMPREHENSIVE INCOME

For the 52 week period ended 1 October 2016

CONSOLIDATED BALANCE SHEET

As at 1 October 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the 52 week period ended 1 October 2016

CONSOLIDATED STATEMENT OF CASH FLOWS

For the 52 week period ended 1 October 2016

NOTES

Accounting policies

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 2015 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 1 October 2016 was approved by the Board on 12 December 2016 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 1 October 2016 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 3 October 2015 have been delivered to the Registrar of Companies.

Going concern

The consolidated financial statements have been prepared on a going concern basis.

Management has produced forecasts for all business units which have been reviewed and approved by the Directors. These demonstrate the Group is forecast to generate profits and cash in 2016/2017 and beyond and that the Group has sufficient cash reserves and bank facilities to enable the Group to meet its obligations as they fall due for a period of at least 12 months from when these financial statements have been signed. Management have modelled the financial covenants in the forecasts and no breach is expected.

As such, the Directors are satisfied that the Company and Group have adequate resources to continue to operate for the foreseeable future. For this reason they continue to adopt the going concern basis for preparing the financial statements.

1. Segmental 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). 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 1 October 2016

*Includes fees associated with making acquisitions.

** 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.

For the 53 week period ended 3 October 2015

There has been no significant trading between the segments in the period.

*Includes fees associated with making acquisitions.

** 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 following table provides an analysis of the Group's revenue by geographical destination.

The Group's largest customer contributed 7% to the Group's revenue (2015: 12%) and is reported within the Precision Machined Components segment. No customers contributed more than 10% in the period to 1 October 2016 (2015: 1).

The following table provides an analysis of the Group's revenue by market.

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 following table provides an analysis of the carrying amount of non-current assets and additions to property, plant and equipment.

2. Profit before taxation

Profit before taxation is stated after charging / (crediting):

3. Amortisation and acquisition related exceptional items

The deferred consideration write back relates to the deferred consideration arising from the acquisition of the Greenlane Group of Companies. The payment of this consideration is contingent on the future results of the acquired entities. The Directors have reviewed forecasts in relation to Greenlane and consider that it is unlikely that the consideration will be paid, and as such it has been released. Given the magnitude of the release and the fact that it is non-trading, the Directors consider it appropriate to disclose this as an exceptional item.

The revaluation of deferred consideration liability relates to the exchange differences calculated on the deferred consideration arising from the acquisition of The Greenlane Group, which was denominated in New Zealand Dollars, before it was written back. Given the large balance and therefore the effect on the results of the Group, the Directors consider it appropriate to disclose this foreign exchange movement as an exceptional item.

4. Other exceptional (charges) / credits

The reorganisation costs relate to costs of restructuring across the Group. They are recognised in accordance with IAS 19.

Costs in relation to the HSE investigation are costs borne by the Group as a direct result of the accident at Chesterfield Special Cylinders which are not recoverable through insurance. Given the non-trading nature of these costs, the Directors consider it appropriate to disclose this as an exceptional item. Further details on the HSE investigation can be seen in note 19.

The release of the rent provision related to a provision made in relation to IAS 17 with regards to the lease held by Chesterfield Special Cylinders at the Meadowhall site. Following the purchase of the site by the Group in January 2015, this provision was no longer required and was consequently released. Given its non-recurring nature it was disclosed as an exceptional item.

5. Exceptional costs - KGTM write off

The exceptional costs in the prior year in relation to the options on and loans to KGTM relate to provisions made by the Board against the balance of the loans receivable from KGTM, an associated company. Due to the uncertainty of repayment, the entire balance of the loan outstanding was provided for.

6. Results of discontinued operation

Due to the oil and gas market conditions that continued into the second half of the accounting period, as part of the groups restructuring, the US operation of the engineered products division was closed during the year. The manufacturing facilities were wound down and fully closed in early September.

7. Taxation

Corporation tax is calculated at 20% (2015: 20.5%) of the estimated assessable profit for the period. Deferred tax is calculated at the rate expected to be substantively enacted when the temporary differences unwind (2015: 20%).

The charge for the period can be reconciled to the profit per the consolidated statement of comprehensive income as follows:

8. Earnings per ordinary share

Basic and diluted earnings per share have been calculated based on the net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares in issue during the period.

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 1 October 2016

The Group adjusted earnings per share is calculated as follows:

For the 53 week period ended 3 October 2015

The Group adjusted earnings per share is calculated as follows:

9. Dividends

The following dividend payments have been made on the ordinary 5p shares in issue: