Pressure Tech Regulatory News (PRES)

28 June 2022

 Pressure Technologies plc

("Pressure Technologies" or the "Group")

2022 Interim Results

Pressure Technologies (AIM: PRES), the specialist engineering group, announces its interim results for the 26 weeks to 2 April 2022.

Financial Highlights

1 Adjusted operating loss is operating loss before amortisation, impairments and other exceptional costs

2 Adjusted basic loss per share is reported earnings per share before amortisation, impairments and other exceptional costs

3 Adjusted operating cash outflow is operating cashflow before cash flow for exceptional costs

4 Net borrowings comprises cash and cash equivalents, bank borrowings, asset finance lease liabilities and right of use asset lease liabilities

5 EBITDA is operating (loss)/profit before depreciation, amortisation, impairments and other exceptional costs

Operational Highlights

Chesterfield Special Cylinders (CSC)

Precision Machined Components (PMC)

Outlook

Chris Walters, Chief Executive of Pressure Technologies commented:

"Results for the first half of the year reflect the expected timing of major defence contract placement and milestones in Chesterfield Special Cylinders and the continued impact of difficult oil and gas market trading conditions in Precision Machined Components.

In Chesterfield Special Cylinders, the order book reached its highest level for more than five years at the end of the first half and a strong second-half performance is expected, driven by high-value defence contracts, Integrity Management deployments and hydrogen energy projects.

The pipeline of hydrogen opportunities continues to develop, with order intake from this exciting market expected to grow significantly into 2023 and beyond, reflecting the accelerating adoption of hydrogen technologies and higher targets for green hydrogen production announced by UK and European governments. As a result, enquiries are increasing for large-scale hydrogen ground storage facilities and for hydrogen road trailers in the UK and Europe, for which we are well placed to deliver solutions to established operators and new entrants.

In Precision Machined Components, the recovery of order intake levels is expected to continue throughout the second half of the year, as OEM customers report an increasingly strong oil and gas market outlook. The division is expected to return to profitability by the end of the first quarter of FY23, as performance recovers in Al-Met and builds on the already profitable and strengthening performance of Roota Engineering.

Our strategy remains focused on the delivery of value from the growth and development of both divisions. I am pleased with the progress made against our strategic priorities and encouraged by the outlook in core markets. Notwithstanding the current economic climate and cost-inflationary pressures across our operations, the Board remains confident in meeting full-year market expectations and is excited about future opportunities for the Group."

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COMPANY DESCRIPTION

www.pressuretechnologies.com

With its head office in Sheffield, the Pressure Technologies Group was founded on its leading market position as a designer and manufacturer of high-integrity, safety-critical components and systems serving global supply chains in oil and gas, defence, industrial and hydrogen energy markets.

The Group has two divisions, Chesterfield Special Cylinders and Precision Machined Components.

Chesterfield Special Cylinders (CSC) - www.chesterfieldcylinders.com 

● Chesterfield Special Cylinders, Sheffield, includes CSC Deutschland GmbH.

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

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

BUSINESS REVIEW

OVERVIEW

Good progress has continued against strategic priorities in defence, oil and gas and hydrogen energy markets despite difficult trading conditions in the first half of the year that reflected the challenging global economic climate, supply chain disruptions and cost inflationary pressures on the Group's operations, customers and suppliers.

Overall Group revenue for the period was £9.5 million (2021: £14.5 million), reflecting the expected phasing of defence contract activity and milestones that are heavily weighted to the second half of the year for Chesterfield Special Cylinders (CSC) and the impact of difficult oil and gas market trading conditions for Precision Machined Components (PMC). Gross profit was £2.1 million (2021: £4.7 million), resulting in an overall adjusted operating loss of £2.1 million (2021: profit £1.1 million).

CHESTERFIELD SPECIAL CYLINDERS

As expected, the timing of major defence contract placement and the phasing of contract milestones resulted in a significantly lower first-half revenue of £6.3 million (2021: £11.3 million). Gross margin of 29% (2021: 41%) and adjusted EBITDA1 of £0.1 million (2021: £3.3 million) reflected the lower level of defence contract revenues delivered in the period and the impact on operational performance of supply chain disruption and higher costs. In addition, the Group invested in the workforce to build required capacity and capability necessary to deliver the strong order book and pipeline for the second half of the year and into FY23.

Input costs, notably for raw material, labour, utilities and subcontracted processes, especially heat treatment, are being closely monitored to ensure they are sufficiently reflected in prices to customers and in permitted contract variations.

At the end of the first half of the year, the CSC order book had reached over £14.5 million, its highest level for more than five years, with further contracts secured in the first two months of the second half.

The strong defence order book and pipeline provides good visibility of UK and overseas navy new construction and refit programmes. Several major contracts with existing customers, including BAE Systems, Babcock, Naval Group and ThyssenKrupp, were secured in the first half of the year and early in the second half, and will contribute to significant revenue and margin recovery in the second half of the year and into FY23.

Demand for Integrity Management and factory cylinder reconditioning services increased steadily during the period, delivering revenue of £1.3 million (2021: £0.7 million). The lifting of Covid-19 travel restrictions has further strengthened order intake for field deployments scheduled for the second half of the year. This creates a solid growth opportunity in the key markets of defence, offshore oil & gas, industrial ground storage and nuclear.

The number of opportunities with new and established customers for static and mobile hydrogen storage systems has continued to grow and the visibility of future demand is improving through the development of long-term supply agreements. This growth also reflects announcements made during the period by established customers Haskel and McPhy about their planned manufacturing capacity increases over the next two years for European markets.

1 EBITDA is operating (loss)/profit before depreciation, amortisation, impairments and other exceptional costs

Revenue from hydrogen projects in the first half of the year was £0.6 million (2021: £0.4 million), reflecting a brief pause in order placement by customers due to supply chain issues that affected lead times for manufactured components and the uncertainty due to cost inflation. However, over the twelve-month period to 2 April 2022 revenue from hydrogen projects was significantly higher at £2.4 million (twelve-month period to 3 April 2021: £0.5 million).

The strengthening hydrogen order book includes contracts with new and established customers, including Haskel, McPhy and Shell for European projects, with manufacturing and delivery schedules weighted to the second half of 2022 and the first half of 2023.

Enquires have also been increasing for large-scale green hydrogen ground storage facilities and for hydrogen road trailers in the UK and Europe. This reflects the increasing interest and demand for the flexible and cost-effective transportation of hydrogen, often from new entrants to the sector, in which CSC is well placed to deliver solutions for established operators and new entrants.

CSC has further raised the profile of its hydrogen capabilities, products and services during events and exhibitions held in France, Spain, Germany and the UK. Based on our own market forecasting and developments seen in customer requirements, we are evaluating opportunities and developing solutions for higher storage pressures, transportable storage systems and the use of alternative storage technologies for hydrogen, representing additional exciting growth opportunities for CSC.

In order to meet the expected increase in demand from the growing hydrogen energy market, investment in the Sheffield facility is focused on delivering the capacity, operational efficiencies and improved contract margins. In addition, the strategic steel tube stock purchased in 2021, using the proceeds from the December 2020 fund raise, and long-term cooperation agreements established with specialist steel tube suppliers, Tenaris and Vallourec, have helped to mitigate raw material cost inflation and support competitive lead times in all markets.

PRECISION MACHINED COMPONENTS

In Precision Machined Components (PMC), revenue of £3.2 million (2021: £3.2 million) and a negative adjusted EBITDA1 of £0.4 million (2021: negative adjusted EBITDA £0.6 million) reflected the challenging trading conditions in the oil and gas market that continued throughout the first half of the year, while Covid-19 disruption and supply chain constraints resulted in further delays.

As expected, and reflecting an increased oil price, the PMC order book built during the first half of the year and by the end of the period had reached its highest level since August 2020, helping to further strengthen profitability at Roota Engineering. Focus remains on the recovery of profitability at Al-Met, where the order book at the end of the first half of the year reached its highest level since January 2021.

The demand for subsea well intervention tools, valve assemblies and control module components continued to grow steadily during the first half of the year. Demand is expected to grow further in the second half as major Roota Engineering OEM customers including Aker, Expro, Halliburton and Schlumberger, plus several new specialist customers, continue to report a stronger oil and gas market outlook for the second half of 2022 and are investing heavily in their global manufacturing capacity to support growth in oil and gas production, principally from South America, West Africa, US Gulf of Mexico, Middle East and North Sea regions. The recovery of revenue and profitability at Roota Engineering has been supported by successful recruitment, skills development and specialist engineering software, increasing the capacity to meet the growing demand and extended product range for a broader customer base.

1 EBITDA is operating (loss)/profit before depreciation, amortisation, impairments and other exceptional costs

At Al-Met, a slower than expected recovery in demand for production drilling and flow control components and a higher cost base driven by the protection of core capabilities and retention of the skilled workforce have resulted in a loss for the period.

However, Al-Met OEM customers, Cameron and Baker Hughes are forecasting a strong recovery in demand for subsea trees and flow control components throughout the remainder of 2022, into 2023 and beyond. Order intake levels for high volume components are already increasing, with Baker Hughes placing their first significant orders for precision choke components covered by the five-year strategic supply agreement signed with Al-Met in June 2020, as major subsea and surface production engineering contracts restart. Al-Met has remained focused on the improvement of operational performance, efficiency and competitiveness in readiness for the recovering order book and is well positioned amongst very few European competitors to do so.

The improving customer sentiment and outlook, supported by increasing enquiry levels are encouraging. Order intake has continued to grow through the start of the second half and in the three-month period to the end of May 2022 was £2.2 million (three-month period to February 2022: £1.7 million). Intake levels are expected to increase further from both established and new customers.

Order intake levels, the acquisition of new customers and the extension of scope for established customers has been supported by demonstrable improvements in operational performance to meet more stringent customer metrics for quality and on-time delivery. Long-term supply agreements and investment in customer relationship management are providing clearer visibility of demand and enabling agile pricing decisions to address fluctuating costs.

Further progress has been made in diversifying into non-oil and gas markets, with 9% (2021: 4%) of revenue in the first half coming from industrial and defence orders, and this is expected to increase further in the second half.

BANK FACILITY, BORROWINGS AND LIQUIDITY

At the end of the period, the Group had net debt of £5.4 million (2 October 2021: £4.9 million), including net bank borrowings (drawn revolving credit facility less cash) of £2.7 million and lease liabilities of £2.7 million.

The Group's revolving credit facility with Lloyds Bank, which now runs to the end of September 2023, was fully drawn at the end of the period at £4.0 million (2 October 2021: £4.8 million drawn).

SENIOR MANAGEMENT APPOINTMENT

On 19 April 2022, Chris Webster joined the Group as Chief Operating Officer, taking on responsibility for manufacturing operations at the Chesterfield Special Cylinders, Roota Engineering, Al-Met and Martract sites.

Based in South Yorkshire, Chris is a Materials Science & Technology graduate from the University of Birmingham and a Chartered Engineer with an MBA in Lean Manufacturing from Warwick Business School. 

Chris brings a wealth of knowledge and operational experience from almost 30 years working in the steel industry and in the rail sector, including responsibility for a range of single and multi-site manufacturing operations.

Strong progress has already been made in identifying and addressing opportunities for efficiency improvement to support growth.

OUTLOOK

The Group's strategy remains focused on the delivery of value from the growth and development of both divisions. Whilst trading in the first half of the year remained difficult, the Board is pleased with the progress made and encouraged by the improving outlook for demand in core markets.

A strong second-half performance is expected for CSC, with revenue of more than £11.0 million already in the orderbook for delivery by the end of September 2022, driven by high-value defence contract milestones, Integrity Management deployments and hydrogen energy projects. The pipeline of hydrogen energy opportunities continues to develop, with order intake from this exciting market expected to grow significantly into 2023 and beyond, reflecting the accelerating adoption of hydrogen technologies and higher targets for green hydrogen production announced by UK and European governments.

The UK's Energy Security Strategy and European Commission's REPowerEU plan were recently updated and released, representing a strong commitment to accelerate the delivery of larger targets for renewables and green hydrogen production, underpinning increased energy security and reducing reliance on Russian fossil fuels. In the case of the UK, the production capacity target for green hydrogen has doubled. This is expected to benefit CSC due to its strong position in its domestic market.

The recovery of order intake levels in PMC is expected to continue throughout the second half of the year as OEM customers report a stronger oil and gas market outlook. The division is expected to return to profitability by the end of the first quarter of FY23, as performance recovers in Al-Met and builds on the already profitable and strengthening performance of Roota Engineering.

Notwithstanding the current economic climate and cost-inflationary pressures across the Group's operations and supply chains, the Board is excited about the future opportunities for the Group and remains confident in meeting full-year market expectations.

Chris Walters

Chief Executive

Condensed Consolidated Statement of Comprehensive Income

For the 26 weeks ended 2 April 2022

Condensed Consolidated Statement of Financial Position

As at 2 April 2022

Condensed Consolidated Statement of Changes in Equity

For the 26 weeks ended 2 April 2022

For the 26 weeks ended 3 April 2021

Condensed Consolidated Statement of Changes in Equity (continued)

For the 26 weeks ended 2 April 2022

Condensed Consolidated Cash Flow Statement

For the 26 weeks ended 2 April 2022

Notes to the Condensed Consolidated Interim Financial Statements

1. Basis of preparation and going concern

The Group's interim results for the 26 weeks ended 2 April 2022 are prepared in accordance with the Group's accounting policies which are based on the recognition and measurement principles of the UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006 and effective from 3 October 2021. As permitted, this interim report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 "Interim financial reporting" and therefore the interim information is not in full compliance with international accounting standards. The principal accounting policies of the Group have remained unchanged from those set out in the Group's 2021 annual report and financial statements. The Principal Risks and Uncertainties of the Group are also set out in the Group's 2021 annual report and financial statements and are unchanged in the period other than in respect of increased inflationary pressures for raw materials (notably steel) and energy. Recent months have seen significant increases in raw material and energy costs arising from both post-pandemic supply chain issues and, more recently, the conflict in Ukraine. The Group monitors these input costs very closely and endeavours to pass the increased costs on to customers wherever possible.

The Group's 2021 financial statements for the 52 weeks ended 2 October 2021 were prepared under UK-adopted international accounting standards. The auditor's report on these financial statements was unmodified and did not contain statements under Sections 498(2) or (3) of the Companies Act 2006 and they have been filed with the Registrar of Companies.

Management have produced forecasts to September 2023 for all business units, taking account of reasonably plausible changes in trading performance and market conditions, which have been reviewed by the Directors. These reasonably plausible changes include the customer's timing of key defence contract milestones, operational delays and the timing of hydrogen energy order placement. The forecasts demonstrate that the Group expects to generate profits and cash in the current financial year and has sufficient cash reserves and headroom in financial covenants to enable the Group to meet its obligations as they fall due for the period of at least 15 months from the date when these financial statements have been signed. The Directors believe that, in the event of assumptions in the forecast not being realised, such that a future potential covenant breach is anticipated, there are several mitigating actions that could be taken, including further cost reductions and cash management steps that could help prevent a potential covenant breach from occurring. After undertaking these assessments and considering the uncertainties set out above, the Directors have a reasonable expectation that the Group has adequate resources to continue to operate for the foreseeable future and for these reasons they continue to adopt the going concern basis in preparing these financial statements. The Group's current banking facility expires in September 2023. The Directors are currently considering various scenarios and have a reasonable expectation that alternative financing arrangements will be secured in order to replace this facility before the end of the going concern period.

The condensed consolidated financial statements are prepared under the historical cost convention as modified to include the revaluation of certain financial instruments.

The financial information for the 26 weeks ended 2 April 2022 and 3 April 2021 has not been audited and does not constitute full financial statements within the meaning of Section 434 of the Companies Act 2006. The unaudited interim financial statements were approved for issue by the Board of Directors on 27 June 2022.

2.  Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 2 October 2021, except for the adoption of amendments to existing standards as of 2 October 2021, as noted below.

New Standards adopted as at 3 October 2021

The following amendments to existing standards and interpretations were effective in the period to 2 April 2022, but were either not applicable or did not have a material impact on the Group:

· Reference to the Conceptual Framework (Amendments to IFRS 3)

· COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)

· Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

o  Reference to the Conceptual Framework (Amendments to IFRS 3)

o  COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)

o  Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

o  Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

3. Segmental analysis and Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA)

Revenue by sector

Revenue by activity

3. Segmental analysis and Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) (continued)

The Group's revenue disaggregated by pattern of revenue recognition and category is as follows:

The following aggregated amounts of transaction values relate to the performance obligations from existing contracts that are unsatisfied or partially unsatisfied as at 2 April 2022:

(Loss)/profit before taxation by activity

The Operating (loss)/profit by activity is stated before the allocation of Group management charges, which are included within 'Unallocated central costs'.

3. Segmental analysis and (Loss)/Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) (continued)

(Loss)/Earnings before interest, taxation, depreciation, and amortisation (EBITDA)

4. Amortisation and impairments

Amortisation of intangible assets and other asset impairments are both shown separately in the Condensed Consolidated Statement of Comprehensive Income. A breakdown of those non-cash costs can be seen below.

In the year ended 2 October 2021, within tangible fixed assets, land and buildings included the Meadowhall Road site which, as part of the Group's discussions with its bankers, was valued by an independent chartered surveyor, Lambert Smith Hampton, which resulted in an impairment of £655,000. The Directors are satisfied that the carrying value is comparable with market value. 

Also included in tangible fixed assets within Assets under Construction was £829,000 along with associated costs of £289,000 that was held in prepayments, relating to the internal and third-party costs incurred in association with the development of a new ERP system in the CSC division. Improvements to the incumbent ERP system meant after an initial assessment, the Directors determined that there was an indicator of impairment of the Asset under Construction and the associated prepayment relating to the development of CSC's ERP system. The Directors recorded an impairment charge of £1,118,000 to fully write off this asset. 

5. Other exceptional costs

Items that are material either because of their size or their nature, or that are non-recurring are considered as exceptional costs and are disclosed separately on the face of the Condensed Consolidated Statement of Comprehensive Income.

An analysis of the amounts presented as exceptional costs in these financial statements is given below:

The reorganisation costs relate to various costs of restructuring across the Group.

Given that these costs do not relate to underlying trading, the Directors consider it appropriate to disclose these as exceptional costs.

6. Taxation

7. (Loss)/earnings per ordinary share

The calculation of 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 calculation of diluted earnings per share is based on basic earnings per share, adjusted to allow for the issue of shares on the assumed conversion of all dilutive options.

Adjusted earnings per share shows earnings per share, adjusting for the impact of the amortisation charged on intangible assets acquired as a result of business combinations, impairments of goodwill and intangible assets, and any other exceptional items, and for the estimated tax impact, if any, of those costs. Adjusted earnings per share is based on the profits as adjusted divided by the weighted average number of shares in issue.

For the 26 week period ended 2 April 2022

The Group adjusted earnings per share is calculated as follows:

7. (Loss)/earnings per ordinary share (continued)

For the 26 week period ended 3 April 2021

The Group adjusted earnings/(loss) per share is calculated as follows:

For the 52 week period ended 2 October 2021

7. (Loss)/earnings per ordinary share (continued)

The Group adjusted loss per share is calculated as follows:

For the 52 week period ended 2 October 2021

8. Asset Impairment Review

The Group tests annually for impairment, or more frequently if there are indicators that intangible and tangible fixed assets might be impaired. The pandemic is a global issue affecting every single business sector and every country to some degree. It has already had a significant impact on the global economy, and whilst its impacts are reducing in the principal countries in which the Group operates, some level of uncertainty remains going forward particularly in respect of supply chain issues and inflationary pressures. Consequently, the impact of the pandemic and the high level of global economic uncertainty is considered to remain an indicator that the carrying value of our intangible and tangible assets in one of the Group's cash generating units (CGU) - the Precision Machined Components (PMC) division - may be impaired.

In light of the above, the Group has considered a range of economic conditions for the sectors in which the Group operates that may exist over the next three years. These economic conditions, together with reasonable and supportable assumptions, have been used to estimate the future cash inflows and outflows for the PMC CGU over the next three years.

These forecasts have been approved by management and the Board of Directors and are based on a bottom-up assessment of costs and uses the current and estimated future sales pipeline. The forecasts used for years two to three assume revenue growth, along with a 2% long-term rate of growth incorporated into the perpetuity calculation at the end of year three. A value in use calculation has been calculated by applying a discount rate of 11.7% (Sep 2021: 11.0%) to the cash flows in these forecasts. 

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 the discount rates, growth rates, changes in customer sector mix, and expected changes to selling prices and direct costs. A baseline reforecast was produced reflecting management's best estimate of the likely impact of the pandemic on the Group's businesses.

Carrying amount of assets allocated to the PMC CGU

In the 52 weeks ended 2 October 2021, the Group recorded no impairment charge with respect to the PMC division. 

8. Asset Impairment Review (continued)

The value in use calculation for the PMC CGU based on the baseline reforecast resulted in headroom of £2.9 million over the total carrying value of £4.5 million, such that no additional impairment, or write back of previous impairments, is required for the PMC division in these interim results. The recoverable amount is most sensitive to the assumptions regarding expected future cash inflows and the discount rate. Given the limited headroom, a relatively small change in the assumptions used in the baseline forecasts for the division's profitability and/or the discount rate applied to the cash flows could cause the carrying value to exceed the recoverable amount, thus indicating that an impairment may be required. This will be next reviewed at the annual impairment test in September 2022.

9. Reconciliation of net (borrowings)/cash

The Group's revolving credit facility with Lloyds Bank, which now runs to the end of September 2023, was fully drawn at the end of the period at £4.0 million (2 October 2021: £4.8 million drawn). Leverage (net debt to adjusted EBITDA) and interest cover covenants, tested quarterly, will commence on the first testing date of 30 September 2022 through to the end of the facility.

10. Called up share capital and share premium

11. Dividends

No final or interim dividend was paid for the 52-week period ended 2 October 2021. No interim dividend for the 26-week period ended 2 April 2022 is proposed.

12. Related party transactions

During the period ended 2 April 2022, Pressure Technologies incurred costs of £nil (2021: £12,500) with RAG Associates Limited with whom one former Non-Executive Director, Sir Roy Gardner, is a connected person. £nil was outstanding to be paid as at 2 April 2022 (2021: £7,500). The transactions were made on an arm's length basis. 

A copy of the Interim Report will be sent to shareholders shortly and will be available on the Company's website: www.pressuretechnologies.com. 

Independent review report to Pressure Technologies plc

Introduction

We have been engaged by the company to review the financial information in the half-yearly financial report for the six months ended 2 April 2022 which comprises Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Cash Flow Statement and the related explanatory notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the financial information in the half-yearly financial report are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.

As disclosed in the Accounting policies, the annual financial statements of the group are prepared in accordance with UK-adopted international accounting standards. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in Note 1.

Our responsibility

Our responsibility is to express to the company a conclusion on the financial information in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

The impact of macro-uncertainties on our review

Our review of the summary accounts in the half-yearly financial report requires us to obtain an understanding of all relevant uncertainties, including those arising as a consequence of the effects of macro-economic uncertainties such as Covid-19 and Brexit. Such reviews assess and challenge the reasonableness of estimates made by the directors and the related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic environment and the company's future prospects and performance.

Covid-19 and Brexit are amongst the most significant economic events for the UK, and at the date of this report its effects are subject to unprecedented levels of uncertainty, with the full range of possible outcomes and their impacts unknown. We applied a standardised firm-wide approach in response to these uncertainties when assessing the company's future prospects and performance. However, no review of interim financial information should be expected to predict the unknowable factors or all possible future implications for a company associated with a course of action such as Covid-19 and Brexit.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 2 April 2022 is not prepared, in all material respects, in accordance with the basis of preparation and going concern as described in Note 1.

Use of our report

This report is made solely to the company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company those matters we are required to state to it in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusion we have formed.

Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

Sheffield

27 June 2022